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Nhs Debt Crisis May Close A String Of Hospitals

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http://www.express.co.uk/news/health/419550/NHS-debt-crisis-may-close-a-string-of-hospitals

Several trusts could be forced to close because of their financial difficulties or those of next door trusts which are saddled with massive debts.

Many have debts running into tens of millions of pounds and their only way of staying open is to axe services.

Last week campaigners won a High Court battle to keep open Lewisham Hospital in south-east London after Health Secretary Jeremy Hunt’s plan to close its accident and emergency department was ruled illegal.

It was claimed that Mr Hunt had targeted the hospital to recover money lost when a neighbouring trust went bankrupt with debts of £200million.

In Essex, officials working for Queen’s Hospital in Romford, which has debts of more than £150million, want to balance its books by closing most of the services at King George Hospital, in nearby Ilford.

..

Barts and the Royal London Hospital, one of the country’s top teaching trusts, also has massive debts. Its new building which opened last year and was funded through a private finance initiative scheme will eventually cost the NHS £1billion. The trust is having to pay £115million every year out of its £1billion-a-year budget until 2048 to pay the mortgage on the building.

..

Professor John Lister, a health expert at Coventry University, said: “There are going to be more hospitals running into trouble due to debt problems.

“Some of the debts are astronomical. Repayments would have been tough enough in normal times but the recession and the need to cut £20billion from NHS spending has been the straw that broke the camel’s back.”

PFI the initiative that relies on ever expanding house prices to keep the money coming into the Treasury to make the interest costs? The govt of the day got shiny new hospital buildings to open but someone is going to the political problem of sorting this mess out, as these building provide essential services I'd be worried if I was holding the debt as it may just get wiped out.

So Barts is forking out over 10% of it's budget on renting the building, what are the normal maintenance costs with a similar building of this size would it come close to £115m?

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PFI the initiative that relies on ever expanding house prices to keep the money coming into the Treasury to make the interest costs? The govt of the day got shiny new hospital buildings to open but someone is going to the political problem of sorting this mess out, as these building provide essential services I'd be worried if I was holding the debt as it may just get wiped out.

So Barts is forking out over 10% of it's budget on renting the building, what are the normal maintenance costs with a similar building of this size would it come close to £115m?

PFI is basically formalized corruption..

It's a far, far more expensive way of building hospitals than, for instance, the government borrowing money and building hospitals. The estimates to try and show 'value' make assumptions (i.e. the PFI company pays tax on profits, 'optimism biases', etc) that have no basis in reality.

The really annoying thing is that there appears no be zero risk for these 'private sector' companies.

Interestingly, the Chancellor COULD achieve genuinely painless deficit reduction by simply taking the PFI debt onto the government books, so paying government interest rates (~3%) instead of PFI rates (~15%). That would allow the hospitals concerned to increase spending on care whilst spending less overall. Strange he hasn't done that.

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PFI is basically formalized corruption..

It's a far, far more expensive way of building hospitals than, for instance, the government borrowing money and building hospitals. The estimates to try and show 'value' make assumptions (i.e. the PFI company pays tax on profits, 'optimism biases', etc) that have no basis in reality.

The really annoying thing is that there appears no be zero risk for these 'private sector' companies.

Interestingly, the Chancellor COULD achieve genuinely painless deficit reduction by simply taking the PFI debt onto the government books, so paying government interest rates (~3%) instead of PFI rates (~15%). That would allow the hospitals concerned to increase spending on care whilst spending less overall. Strange he hasn't done that.

Not even Labour are willing to nationalise things these days, so I can't imagine the Tories could even conceive of such a thing.

No, the Tory way is to hand "failing" institutions over to the private sector. Works a treat every time.

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PFI is basically formalized corruption..

It's a far, far more expensive way of building hospitals than, for instance, the government borrowing money and building hospitals. The estimates to try and show 'value' make assumptions (i.e. the PFI company pays tax on profits, 'optimism biases', etc) that have no basis in reality.

The really annoying thing is that there appears no be zero risk for these 'private sector' companies.

Interestingly, the Chancellor COULD achieve genuinely painless deficit reduction by simply taking the PFI debt onto the government books, so paying government interest rates (~3%) instead of PFI rates (~15%). That would allow the hospitals concerned to increase spending on care whilst spending less overall. Strange he hasn't done that.

Or they could let trust go broke, and the PFI companies go bust.

Would help if 'in the national interest' any PFI company wanting to evict a non paying trust had to prove they had an alternative use for the building, equipment and site.

So trust just stops paying. PFI company are stymied at the court - until 'things get better'.

Also an investigation or two into corruption on PFI would be welcomed by me.

I welcome genuine risk/reward relationships that work out well for both sides - but PFI was a con (get debt off government books) and open to profiteering and corruption.

Edited by NorthamptonBear

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Or they could let trust go broke, and the PFI companies go bust.

Would help if 'in the national interest' any PFI company wanting to evict a non paying trust had to prove they had an alternative use for the building, equipment and site.

So trust just stops paying. PFI company are stymied at the court - until 'things get better'.

Also an investigation or two into corruption on PFI would be welcomed by me.

I welcome genuine risk/reward relationships that work out well for both sides - but PFI was a con (get debt off government books) and open to profiteering and corruption.

They could just say we'll run the hospital?

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They could just say we'll run the hospital?

PFI trust - yep - just make sure corporate manslaughter can be used when appropriate (current NHS also needs this).

BUT - teh PFI companies in general are just (offshore?) financial companies - operational aspects are not of interest.

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So Barts is forking out over 10% of it's budget on renting the building, what are the normal maintenance costs with a similar building of this size would it come close to £115m?

The new building and equipment (a which I believe included the medical equipment) cost just under £1bn in capital cost.

It's difficult to quantify what a commercial rent would be, or what maintenance costs might be.

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PFI is basically formalized corruption..

I remember a year or so back when the local news quizzed a labour (or pre-2010 election labour MP) about the newly opened peterborough hospital, several years late and vastly over budget.

His words were along the lines of 'its worth it at any cost because now we have a new hospital'

Evidently someone who probably bought a house in Early 2007, too...

Why would he care, its only taxpayers money. He gets paid either way.

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There's nothing wrong with PFI. People just like a scapegoat, and if it something that is not widely understood - all the better.

So you think it gives value for money and transfers risk to the private sector?

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So you think it gives value for money and transfers risk to the private sector?

Largely, yes.

There have been some mistakes made on individual schemes, but this will always happen. As a concept it is fine.

The government is using it again for Priority Schools and stripping out virtually every upside the private sector managed in the past. Assuming there is actually competition and the major construction firms aren't driven away, I find it hard to believe there is a cheaper way to deliver schools with the risk transfer.

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Hmmm. Looking at your name and responses I would guess you are in fact an accountant and you look at 'outsourcing contracts' where you believe you are performing a worthwhile function.

Judging from your response, I would guess you are the sort of person that needs to know what someone's job is before you can work out whether to listen to their opinion.

Whether I am brickie or an accountant it has no impact on the merit of my opinion.

(I am neither by the way)

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Largely, yes.

There have been some mistakes made on individual schemes, but this will always happen. As a concept it is fine.

In which case why are the hospitals going bankrupt?

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In which case why are the hospitals going bankrupt?

Well, it is an interesting question and one I'm not really qualified to answer. With the exception of RPI, the price of PFI contracts are known for 25 years. There is no unpredictable cost under PFI - that is the point of it. So implying that PFI contracts are suddenly bringing down trusts is politics at its worst.

Idle speculation for reasons that the Trusts are struggling (so may be incorrect):

(i) Inflating PFI contracts at RPI means they have risen at a greater rate than the income received by trusts - RPI having been higher over the last few years. Most PFI contracts are not fully indexed with inflation (a preference of the private sector), but the Department of Health has always insisted that 100% of PFI healthcare payments should be.

(ii) Automatic annual pay point increases for lots of staff. Given the state of the economy staff won't be leaving, so all the staff performing jobs will be the staff on the highest pay points.

(iii) General mismanagement and similar reasons lots of businesses fail.

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Well, it is an interesting question and one I'm not really qualified to answer. With the exception of RPI, the price of PFI contracts are known for 25 years. There is no unpredictable cost under PFI - that is the point of it. So implying that PFI contracts are suddenly bringing down trusts is politics at its worst.

Idle speculation for reasons that the Trusts are struggling (so may be incorrect):

(i) Inflating PFI contracts at RPI means they have risen at a greater rate than the income received by trusts - RPI having been higher over the last few years. Most PFI contracts are not fully indexed with inflation (a preference of the private sector), but the Department of Health has always insisted that 100% of PFI healthcare payments should be.

(ii) Automatic annual pay point increases for lots of staff. Given the state of the economy staff won't be leaving, so all the staff performing jobs will be the staff on the highest pay points.

(iii) General mismanagement and similar reasons lots of businesses fail.

Sounds like the PFI deals done by trusts are indeed bringing down trusts. You say PFI might be fine on different terms, a moot point perhaps?

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Well, it is an interesting question and one I'm not really qualified to answer. With the exception of RPI, the price of PFI contracts are known for 25 years. There is no unpredictable cost under PFI - that is the point of it. So implying that PFI contracts are suddenly bringing down trusts is politics at its worst.

But surely, had the government simply borrowed the money itself (at a much lower interest rate) then the hospital would still have been built, and the costs would be much lower. Less interest, no ongoing profits.

If a private contractor was wanted to build the hospital then a fixed-price contract could no doubt be negotiated.

SOMETHING is bringing down the trusts.

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Sounds like the PFI deals done by trusts are indeed bringing down trusts. You say PFI might be fine on different terms, a moot point perhaps?

Even during the delationary period when contracts went down in price, PFI was still blamed for all that is wrong. I suspect the other reasons I mentioned are more relevant - PFI is just an easy target to shift blame towards.

But if it is the RPI linked nature of the contracts that are at fault, then this is hardly the fault of the private sector and PFI. As I said, this is a DoH requirement - every other PFI project is done under a different mechanism.

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But surely, had the government simply borrowed the money itself (at a much lower interest rate) then the hospital would still have been built, and the costs would be much lower. Less interest, no ongoing profits.

If a private contractor was wanted to build the hospital then a fixed-price contract could no doubt be negotiated.

All of this is true, but there would be no risk transfer then and ongoing costs would be met by the trusts (so harder to budget for).

The question should be whether the public sector needs the risk transfer. Again, I don't know the answer, I haven't studied the cost comparisons between private and public procurement. The Olympics was broadly delivered on time and on budget, so that is a success for public procurement, but the Scottish government building was not.

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It is is also worth noting that PFI has been exported around the world and contributes to the British economy. This may be because all governments are foolish, or it may be that there is some merit in PFI.

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The new building and equipment (a which I believe included the medical equipment) cost just under £1bn in capital cost.

It's difficult to quantify what a commercial rent would be, or what maintenance costs might be.

In principle it should be easy to identify a commercial rent, one just needs to look at the yields available on other commercial properties, the fact that this is a hospital should make no difference to the PFI company's rate of return.

Rough guess, given that a hospital trust would presumably qualify as a prime customer, I'd guess at a rent of yield of around 5-6% which would imply a rent of say £60m per year.

Whether the implied £55m ongoing maintenance cost represents value for money is harder to judge and depends upon what is included within the price; at a rough guess maintaining the fabric of the building is going to cost between 1-2% of the building cost per year, say £10m. I'm not in a position to judge whether the hospital would spend a further £45m p/a on the other services received (i.e equipment maintenance) but at first glance this figure does seem high.

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Interestingly, the Chancellor COULD achieve genuinely painless deficit reduction by simply taking the PFI debt onto the government books, so paying government interest rates (~3%) instead of PFI rates (~15%). That would allow the hospitals concerned to increase spending on care whilst spending less overall. Strange he hasn't done that.

Why do that?

Far better to pass an Act of Parliament cancelling all PFI debt (the payments would then be ZERO)- and arresting all the directors of the PFI companies for fraud.

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All of this is true, but there would be no risk transfer then and ongoing costs would be met by the trusts (so harder to budget for).

The question should be whether the public sector needs the risk transfer. Again, I don't know the answer, I haven't studied the cost comparisons between private and public procurement. The Olympics was broadly delivered on time and on budget, so that is a success for public procurement, but the Scottish government building was not.

No it wasn't. The Olympics - as Moneyweek pointed out the other day - were grossly over budget.

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