The purpose of this chapter was to estimate the extra cost attributable to the PFI contract at the NNUH by doing a before and after study. Because the first payments under the PFI contract were made to Octagon Healthcare in August 2001, the chapter started by looking at the rise in operating costs at the hospital since then. In 2000/01 (the first full year before the PFI contract), operating costs totalled £155.4 mn (see table 9.1). If we exclude the PFI set-up costs in that year of £2.2 mn, the total costs were £153.2 mn.
Seven years later, in 2007/08, total costs were £323.2 mn. Thus total costs have risen over this seven-year PFI period by £170 mn. In the six years before the PFI contract, total costs (excluding PFI set-up costs) at the hospital rose at an average of 3 per cent per annum whereas in the seven years since PFI the annual increase has been 8.2 per cent per annum. However by no means all of the increase is due to the PFI contract.
There are a number of adjustments that need to be made over the post-PFI period;
• first, allowance needs to be made for inflation (the general increase in prices as measured by the retail price index). This accounts for £32.5 mn;
• second, allowance needs to made for the education, training and research expenditure at the NNUH since the hospital functions as a medical school. The rise of these expenses (in 2007 prices) accounts for £12.2 mn;
• third, allowance needs to be made for the rise in prices at the hospital over and above the general rate of inflation. This hospital-specific inflation accounts for a further £27.7 million (see table 9.6);
• fourth, allowance needs to be made for the increase in the number of patients treated at the hospital over the seven years. This accounts for £52.9 mn (see table 9.9).
These adjustments account for £125.3 mn out of the total increase of £170 mn. Is the remaining £44.7 mn due to the PFI contract? The answer is "we do not know for certain, but almost certainly not".
There are three usage and service fees paid under the PFI contracts. These are for the rent of the buildings, the maintenance of the buildings and a number of services (such as portering and catering) falling under Facilities Management Services (FMS).
The estimate of the increase in rent between the before-PFI and after-PFI situations is £18.0 mn. In section 9.2 it was emphasised that the rent being paid for the old hospitals was sufficient to replace the hospitals so that this estimate of the increase is a realistic one. Deducting this from the £44.7 mn leaves a balance of £26.7 mn to be accounted for. Some of this may be accounted for by an increase in maintenance and FMS costs but without having access to more detailed accounts for the pre-PFI years, it is impossible to say.
Thus the increase in costs due to the PFI contract is £18.0 mn plus any increase in maintenance and FMS expenses. The latter have averaged £13 mn in the post-PFI period and the extra costs could be as much as a third of these hat is, £4 mn ut we do not know. But even if a further £4 mn is attributable to the PFI contract, this still leaves an increase of £22.7 mn unaccounted for.
However even this is not the end of the story, as pointed out in section 9.4. The new hospital is very much smaller (in terms of beds) than the hospitals that it replaced. This was a deliberate move to make the new, PFI hospital appear 'affordable'. Indeed in 1996 when the PFI hospital was first up for approval, the proposal was for 701 beds. It now has 987 beds but this is still 18 per cent fewer than the 1207 beds of the old hospitals.
The average length of stay in the new hospital was 4.3 days at the beginning of the PFI period and in 2007/08 it was more or less the same t 4.2 days. As a result, as the number of in-patients has risen, the number of bed-days has also risen and in 2007-08 the hospital was operating at about 89 per cent of capacity. Not surprisingly, beds have had to be purchased from private hospitals within the region at higher cost because the NNUH has been unable to carry out all the work for itself. At least they had to be in 2004/05 with the excess cost totalling £0.8 million and in 2008/09 with (probably) an excess cost of over £1 mn. In an email dated January 16, 2009, I asked the head of the Norfolk PCT about the extra cost incurred in buying beds from the private sector. A reply is still awaited.
Thus the extra cost due to the PFI contract is £18 mn in additional rent, plus at least £1 mn in buying in beds from the private sector. On top of this, there may be higher maintenance and service costs.
Thus the minimum extra cost associated with the PFI contract is £19 mn a year. Is it too late to cut some of these costs? This is what we look at in the final chapter but, before that, in the next chapter, I look at the profits being made from some of the PFI contracts.