9.1 Costs at the Norwich hospitals from 1994 to 2008

A suitable starting point for the before-and-after analysis is an examination of the published accounts of the NNUH Trust. Table 9.1 shows the operating expenses of the hospital trust from 1994/95 to 2007/08. These are shown in current price terms and then the totals are modified by the retail price index to arrive at the operating expenses in 'real' terms n this case, in September 2007 prices. The year-on-year percentage increases in the real operating expenses are then shown.

It is worth noting the sharp rise in costs after 2001 which was when the PFI contract came into force. It was in August 2001 that the first payments were made to Octagon Healthcare under the PFI contract26.

In Table 9.2 below, the costs (in September 2007 prices) are split to distinguish those before-PFI from those after-PFI, taking the pre-PFI years as from 1994/95 to 2000/01 and the pre-to-post PFI years as from 2000/01 to 2007/08. As the table shows, the real cost increase in the six pre-PFI years averaged 3.3 per cent per annum while the average real cost increase in the seven post-PFI years has been 8.0 per cent per annum

The increase in the post-PFI period has been sharp. Indeed it has been even faster if we subtract the PFI set-up costs incurred by the NNUH in 2000/01 from that year's total. Between 1995/96 and 2000/01, PFI set-up costs (incurred by the Trust) totalled £11.8 mn. In 2000/01 they were £2.2 mn (£2.7 mn in 2007 prices) and if we take these out, the average annual rise in total costs between 1994/95 and 2000/01 was 3 per cent, not 3.3 per cent. Similarly the increase between the last complete PFI year (2000/01) and the latest year (2007/08) averages 8.2 per cent per annum. Now the rise in costs in the period after PFI looks even sharper than before - from 3% pa before PFI to 8.2% pa after PFI.

The rise in real costs (that is, in 2007 prices) between 2000/01 (the last full year before the PFI contract) and 2007/08 (the latest year for which information is available) is £134.9 mn - or £137.6 mn if account is taken of the PFI set-up costs in 2000/01.

Is the whole of this £137.6 mn increase (in 2007 prices) attributable to the PFI contract? If not, how much is? Obviously the easiest way of answering this question is by first looking directly at the payments made under the PFI contract. This is done in the next section.

26 . Note that there was also a sharp increase in costs - of 8.5 per cent in 2007 prices - between 1998/99 and 1999/2000, that is, in the pre-PFI period (see Table 9.1). A major component in this sharp increase was in 'other costs' which rose by £4.5 million in 'money-of-the-day' terms (again see table 9.1) and most of this was accounted for by £1.8 million in clinical negligence costs and £2.4 million in PFI set-up costs.