In chapter 4, we have looked (through the Andersen model) at the likelihood of the PFI capital+finance costs being larger and in chapters 5 and 6 at the fabricated with-and-without comparisons of PFI and PSC costs. Clearly another way to assess value for money from PFI projects is to look at PFI schemes which are up and running.
This is what is done in chapters 8 and 9 by looking at the Norfolk and Norwich University Hospital (NNUH). Chapter 8 gives a brief history of the NNUH with a more detailed history being given in Appendix 1. The NNUH was one of the first PFI hospitals and has 987 beds. In 1998, a financial contract was signed with Octagon Healthcare and in August 2001, the first payments were made to Octagon Healthcare under the PFI contract. In September 2002, a medical school had been initiated and the move from the two old hospitals to the new one on the outskirts of Norwich was completed in 2003.
The operating costs of the NNUH are analysed in chapter 9. In the six pre-PFI years up to 2001 (the year of the first payments under the PFI contract) the costs rose in real terms (that is at September 2007 prices) by 21%. Over the six post-PFI years between 2000/01 and 2007/08, the costs have risen by £134.9 mn or by 72% of the costs in 2000/01. If we exclude the PFI set-up costs incurred in 2000/01, the rise is £137.6 mn
However the PFI contract cannot be blamed for the whole of this £137.6 mn rise in costs. Most of it is due to the costs associated with the medical school, an above rate of inflation rise in the salaries of consultants and an increase in the number of patients treated. Much of chapter 9 consists of an analysis of these factors. Table S.1 below summarises the findings.
| Table S.1 Explaining post-PFI increases in costs at the NNUH | ||||
| Years/causes | Staff | Clinical | Others | Total |
| supplies | ||||
| (£mn) | (£mn) | (£mn) | (£mn) | |
| Total costs in | ||||
| 2000/01 (before PFI) | 94.1 | 23.9 | 37.4 | 155.4 |
| Less PFI set-up costs | 2.2 | 2.2 | ||
| Total costs (exc. PFI set-up | ||||
| costs) before PFI | 94.1 | 23.9 | 35.2 | 153.2 |
| Total costs in 20007/08 | 183.8 | 60.7 | 78.7 | 323.2 |
| Increase in costs since PFI | 89.7 | 36.8 | 43.5 | 170.0 |
| Causes of cost increases? | ||||
| 1. Rise in general prices | 19.9 | 5.1 | 7.4 | 32.4 |
| 2. Rise in rent | 18.0 | 18 | ||
| 3. Medical school costs | 7.1 | 3.2 | 1.9 | 12.2 |
| 4. Hospital-specific inflation | 25.1 | 0 | 2.6 | 27.7 |
| 5. Rise in number of patients | 33.1 | 10.9 | 8.9 | 52.9 |
| Cost increase 'unexplained' | 4.5 | 17.6 | 4.7 | 26.8 |
| % of increase | 5 | 48 | 11 | 16 |
As shown in the above table, the increase in costs over the period of the PFI contract (2001/02 to 2007/08) has been £170 mn. About 84% of this increase can be explained by a number of factors as follows;
• £32.4 mn can be explained by a 21% general rise in prices as measured by increases in the Retail Price Index (see table 9.1);
• before PFI, the NNUH Trust was paying a rent sufficient to pay for a new, replacement hospital. The rise in rent (in 2007/08 prices) as a result of the PFI contract has been £18.0 mn (see chapter 9.2);
• the costs associated with the medical school have totalled £12.2 mn (see chapter 9.3);
• over the PFI period, prices have risen at a faster rate for hospitals than for the economy in general. This rise has been particularly sharp for staff and the increase in costs due to this hospital-specific inflation has been £27.7 mn (see chapter 9.3);
• over the PFI period, the volume of activity at the hospital over the seven years from 2000/01 to 2007/08 has risen by 16%. This accounts for an increase in costs of £52.9 mn (again see chapter 9.3).
We can see from table S.1 above, that the unexplained increase in costs at the NNUH totals £26.8 mn or about 16% of the total increase. Of the three categories of costs given in the table, the largest unexplained increase is for 'clinical supplies'. This is £17.6 mn or almost half of the total increase in clinical supplies costs (of £36.8 mn) between 2000/01 and 2007/08. The increase could be due to drugs prices rising faster than the Retail Price Index, although Wanless et al 2007 has suggested that the prices of 'intermediate goods' have risen more slowly than the RPI. The increase could be due to a switch to the use of better, more expensive drugs. When approached about the increase, Trust officials implied that the increase was due a rise in the cost of drugs.