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Hospitals under the knife

AGENDA - The Government's last-minute decision to put the £4.6 billion Barts and The London Hospitals scheme on hold signals a radical change of thinking about NHS procurement strategy.Andrew Hankinson reports

THE CHANCELLOR looks like bridging the black hole in public finances by spending cuts rather than tax rises. The economic think-tank, the Institute of Fiscal Studies, reckons that Gordon Brown has slated £8 billion in spending cuts signalling the end of the sort of spending witnessed in recent years on essential public services.

Transport secretary Alistair Darling has terminated several big road and tram schemes, despite having forked out m illions of pounds in preparat ion costs.

Now the health sector is being forced to rethink every bit of spending, no matter how far down the road they are with their schemes.

The most headline-grabbing about-turn so far is the scheme to rebuild the capital's Barts and Royal London hospitals. The project has been the biggest Private Finance Initiative hospital development and has been trailed as such by the Government for the past five years.

Not any more.

Health secretary Patricia Hewitt effectively pulled the plug on the deal just days before Skanska was due to sign the contract ? worth £4.6 billion over its entire life.

The idea, her officials said, was being 'reconsidered'.

In a statement explaining the decision, the Department of Health said: 'We have asked the trust to reconsider its plans to ensure that the Barts and Royal London scheme is both affordable and meets local needs. The trust has been asked to consider further the inclusion of the Barts element within the scheme as part of this process.' The reaction from both the construction industry and the trust is united: surprise, anger and scepticism.

A source at one leading hospital builder said: 'What can we do? It's not up to us what is built. We just do as we're told. It's just a shame that the Government has led us up the garden path with certain projects, but it is happening time and time again. It's all very well making the big announcement but their bottle seems to run out when it comes to picking up the tab.' And the trust itself issued a statement which just about managed to keep a lid on its dismay. It said: 'Barts and The London NHS Trust has been working with its preferred bidder, Skanska Innisfree, since December 2003 to redevelop both Barts and The Royal London Hospital.

Preliminary building work is already under way.

'This Government has consistently said that Barts Hospital must remain open. The existing facilities, some of which date back to the nineteenth century, need to be replaced. This project is affordable. It will also deliver value for money.' Skanska is keeping quiet ? its hands are tied. But, having spent countless hours and millions in the runup to financial close, it must now feel like a marathon runner having run 25 miles only to be told the race has been called off.

The Conservative party has claimed that many NHS trusts are financing their deficits by failing to pay their suppliers on time. Problems of late payment are widespread, with some firms reporting that bills are not settled for up to 120 days.

The Government has stated that NHS bodies are required to comply with the Confederation of British Industry's better payment practice code target of paying 95 per cent of undisputed invoices within the decided contract terms or within 30 days where no terms have been agreed.

But, according to the Tories, suppliers are not able to invoke their statutory right to charge interest when these terms are not met because NHS organisations have th reatened to stop using them if they do.

Shadow health secretary Andrew Lansley said: 'The deficit crisis is affecting all levels of NHS services. Late payment to suppliers and contractors is part of the wider problem of financial mismanagement. The Government has only recently acknowledged the problem but it remains to be seen what they'll do about it.' Most visible has been the Department of Health's reluctance to progress its major projects. Contractors have known for a while it was having a rethink on building bold new hospitals.

Only seven PFI health schemes reached financial close last year. Around three of these were major schemes like Barts, as opposed to the 10 major hospitals the Government had hoped to close on.

ProCure 21 projects have slowed down as well, prompting contractors to question the worth of being on the list of suppliers. The one area that isn't doing badly is the Local Improvement Finance Trust.

According to the Department of Health all 42 projects in the first three waves of LIFT have reached financial close, which amounts to around £700 million. Most of the facilities are one-stop health centres offering services such as X-ray, minor surgery and access to GPs.

The feeling is that the scheme may be extended to the Government's community hospitals. But such works are small fry compared to what was expected through the Private Finance Initiative.

One contractor summed up the Government's aboutturn: 'The NHS is returning to its roots. We've all be rubbing our hands for great big hospital developments that bring big contracts but that's not the way things are going any more. It's returning to small hospitals in local communities.

'The NHS is organised like a wheel, with a series of spokes running from the central hub. Well the spokes used to be big fat ones, with a trim hub. Then the new technology came in ? scanners and things like that ? and, as it was so costly, it had to be centralised. So the hub got fatter and fatter and fatter.

'Now the technology has moved on again and it means we don't need big central hospitals. So everything is getting moved out to the spokes again. The main hospitals will soon only be providing care for those with intensive needs. Then when people are well enough they'll be moved to what are being called 'patient hotels'.' Another contractor said: 'I don't think there are many hospitals out there that are willing to take on the burden of a PFI contract. The only one I know of that seems to be doing well is Tunbridge Wells. The lady in charge [Rose Gibb, chief executive of Maidstone and Tunbridge Wells NHS Trust] down there has got it sorted.

'She has devised a great financial model that everyone involved has signed up to and I don't see anything going wrong down there. Others haven't done so well.

They don't seem to be able to guarantee the level of income needed to be able to pay the pr ivate par tner.' But aside from the Government turning against them, why is it proving so difficult to build large hospitals in this country?

There needs to be reform to bring the cost down but planned changes in PFI and, in particular, procurement in the health sector have already been discussed at length for the past year or so. The Treasury is apparently considering at the moment how to get the best out of PFI and contractors will hopefully be pleased when the change comes about.

Stephen Ratcliffe, director of the Major Contractors Group, said: 'PFI has delivered tremendous value to the National Health Service delivering good quality healthcare facilities on time and within budget. We know that ministers at the Treasury and Department of Health fully recognise this. The Department also understands contractors' needs and will be working with us to ensure that we are fully up to speed on the pace of deal flow and their changing priorities.' The Department of Health is also pushing a more optimistic line. A spokesman said: 'The department keeps the hospital PFI programme under constant review to ensure it delivers value for money. A number of PFI schemes are reaching a critical moment in their contracting process and are, therefore, being subjected to the sort of detailed scrutiny that the public would expect in a major procurement.

'This does not mean there is a freeze on hospital PFI projects. We have just given two projects, Oxford Radcliffe Hospitals and Portsmouth Hospitals, the goahead for construction.

'PFI continues to deliver the biggest hospital building programme in the history of the NHS, replacing old and outmoded buildings with ones fit for the 21st century.

'Where new hospital PFI schemes are affordable to the NHS, meet patient needs and provide value for money, they will be built as we continue to rectify under investment in NHS facilities.' So it's not all doom and gloom, then. But the Government would say that. With the changes in policy towards a market-driven health service, there may be several more major hospital redevelopments to come crashing down. It must be an uncomfortable time for anyone investing the required millions in bidding for PFI hospitals.