Given the weakness of the economic case for PFI, the cost it imposes on a healthcare system-and the potential impact of this cost on services-is a significant public interest concern. Under PFI, payments to the private consortia have to be met from the budgets of public authorities and in the case of the UK's NHS, from local hospital trusts' annual financial allocations. Depending on the service element, the contracts cover between 60 and 75% of total payments of the £70.5 billion (£62.65 billion in the NHS England; Figure 3) made to the private sector for providing and maintaining the assets (the "availability fee").4 This availability fee can have a significant impact on the revenue streams of a hospital.
Research has shown that an "affordability gap" emerges for NHS organisations during the PFI procurement process, and strategies to bridge this gap are identified in planning documents. Examples of bridging strategies are: increasing patient throughput; selling NHS land; and reducing beds and staff across health economies. (Gaffney et al 1999b). With many schemes now in the operational phase, it has become possible to examine empirically the impact of these strategies on capacity.
In a recent examination of the first 18 operational PFI hospitals, official auditors found that 13 had bed occupancy rates higher than the NHS average (National Audit Office 2007b). Almost all the trusts involved (17 of 18) had higher bed occupancy rates under PFI than in their former buildings. The NAO comments that such levels "raise issues about capacity and patient care", including the "adequacy of capacity to meet peaks in admissions" and "infection control" (p 18).
While cuts and closures planned for in PFI planning documents have clearly had an impact on health care delivery, it is evident from more recent research (eg Hellowell and Pollock 2007) that an affordability gap remains.
Earlier published work (Pollock et al 2000) showed how the planning of the replacement Worcestershire Acute Hospital led to affordability problems which triggered the downgrading of Kidderminster hospital and bed reductions of 30% across the trust estate. Despite these measures, written evidence from the trust to the House of Commons Health Select Committee shows that affordability problems remain, such that the combined overspend for the trust in 2005-06 was £4.9 million, with an underlying deficit of £20 million (House of Commons 2006).
The trust attributed £7 million of this deficit to the "additional costs" of their PFI hospital, which it has said are "not reflected equitably in the national tariff and for which the trust does not receive sufficient income" (p 152).
This was despite £1.5 million of subsidy provided that year by the DH and the NHS Bank. In response, the trust has developed a recovery plan, which involves a reduction of staff numbers by 675. It has also warned that achieving recurrent financial balance will not be achieved without "even more radical action", involving "a comprehensive review of services" across its three hospitals, amid "serious questions about their sustainability" (p 153).
In South East London, the outcomes are similar. According to a paper from the South East London and Maudsley Strategic Health Authority (SHA), the area's four district general hospitals had a combined deficit of £66 million in 2005-06, with the largest losses at the Queen Elizabeth and Bromley trusts (South London and Maudsley SHA 2007).
Both Queen Elizabeth and Bromley have operational PFI schemes with capital values in excess of £50 million. Bromley's PFI scheme is on-balance sheet, with the effect that both availability and capital charges are paid on the asset; and both trusts received DH subsidies in 2005-06 (£1.1 million and £4.9 million, respectively).
Nonetheless, according to an SHA document, the deficits of both trusts arise "because the cash costs of the PFI availability charge exceed funding for capital charges in tariffs" (p 5). Both trusts had capital cost/income ratios of over 10%, against the 5.8% funded in the tariff. The SHA explains that these trusts "incur recurrent [income/expenditure] and cash flow deficits even if they operate as efficiently as the average hospital trust in England" (p 7). It suggests that achieving financial balance in the area cannot be achieved without significantly reducing "controllable costs", including "further substantial reductions in staff costs and staff numbers" (p 10).
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4 Hellowell and Pollock (2007) give a breakdown by availability fee for each PFI hospital.