Capacity to Treat Private Sector Nhs Plan
In the forward to the White Paper “The NHS Plan: A Plan for investment, a plan for reform” Tony Blair set out New Labour’s project of modernising the NHS in England through a combination of investment and reform. After a period of sustained underinvestment in health services the NHS Plan detailed how additional funding would expand hospital resources. Funding provided by the government to the NHS was set to increase in real terms by 7% per annum over a 5-year planning period. This commitment, it was argued, would reduce uncertainty and facilitate medium term planning in the NHS. Any extra funds would also be coupled to reform(s) to ensure that finance converted into additional hospital productivity and capacity to treat patients.
In the forward to The NHS Plan, the Prime Minister outlined the governments’ financial commitment to the NHS.
“So urgent was the need for extra money for the NHS that many of the failures of the system were masked or considered secondary. In March we took a profound decision as a Government. We had sorted out public finances. Debt repayments were down. Spending on unemployment benefits and other benefits associated with large numbers of people economically inactive, was down also. We decided to make an historic commitment to a sustained increase in NHS spending. Over five years it amounts to an increase of a third in real terms. Over time we aim to bring it up to the EU average.”
Arguments about the lack of resources in the NHS recede relative to those concerned with modernisation, managerial reform, delivering capacity to treat patients and extending patient choice. In the NHS Plan, it is made clear that if the acute hospital sector is to deliver additional capacity to treat patients it not only requires additional funding but this funding should be tied to reform.
“with the funding issue settled for the next few years, the NHS can address the need to reform itself – from top to toe – to meet the challenges of rising patient expectations.”
The NHS Plan clearly links investment with reform. Without reform, it is argued, additional investment will not necessarily translate into additional capacity to treat patients. This connection between investment, reform and capacity is elaborated through a series of illustrations in the NHS Plan. For example, investment in wages and salaries is associated with modifications to employee relations and working practises that in turn will be expected to increase NHS productivity and thus drive up capacity to treat patients. Working in partnership with the private sector would help to financially underwrite new capital projects that would also expand and modernise physical capacity.
Given the importance of labour, in what is essentially a service driven activity, the NHS Plan attached great importance to the reform of working practises in particular securing additional labour flexibility to improve patient care and increase available hospital capacity. Even before the NHS Plan the Labour government had anticipated that investing in a growth in staff numbers, flexible working, system and role re-design, higher retention and changes to pay structures would enhance patient care and more critically improve productivity and hospital capacity.
In return the government was prepared to invest in pay. “We are prepared to invest in pay. We also know the current NHS pay system inhibits the modernisation of the service. It has failed to keep pace with changes in NHS practice, and does not recognise that modern forms of healthcare rely on flexible teams of staff working across traditional skill boundaries”.
The NHS Plan also envisaged a major investment in buildings and infrastructure using a mixture of “public capital and an extended role for the Private Finance Initiative (PFI)”. On the capital-side of the resource equation, reform involved modifying the relationship with the private sector to secure privately financed contracts to design and build and possibly also deliver facilities management services to the NHS.
“Additional capacity for healthcare provision would also be secured by changing the relationship with the private sector in particular seeking PFI funding to build new hospitals.”
Using the private sector to underwrite the cost of capital projects in the NHS was attractive at a macro-accounting level because large lumpy capital commitments could be converted into a series of future amortised annual payments. Capital costs would be spread into the future appearing as expenditure in the accounts of individual hospitals. At a micro level value for money (VFM) capital project appraisal could be employed to financially justify the award of capital projects between private or public contractors. The accounting calculations employed in VFM have been subject to some criticism. In particular, that the accounting logics employed to allocate risk, cost and income between public and private sector contractor are faulty and more specifically that the financial benefits of using the private sector are small and uncertain. Grimsey and Lewis, 2002 and Grimsey and Lewis, 2005 observe that there has been little engagement between practitioners and academics on these issues. They argue a positive case for public private partnership (PPP) illustrating how governments can construct variably defined contracts to secure a range of transactional and agency relations with the private sector whereby market based contracts can be used to install incentives and discipline to increase efficiency.
A common concern in both the academic and practitioner critiques is with the assumptions employed to construct the financial cost benefit appraisals which are then used to allocate public funds to PFI/PPP projects. These assumptions are often not clear cut because we do not possess full information about the past the present and future. If risk and uncertainty cannot be eliminated then this opens up the possibility of a less than a straightforward connection between policy intention(s) and possible future outcome(s). A significant number of PFI and PPP contracts are now up and running in the NHS and the extent to which these projects succeed or fail to deliver VFM can only be assessed with an ex-post audit at a time when the contract with the private sector provider more or less completed.
A central objective of the NHS Plan was to reduce uncertainty. In providing healthcare managers with predictable future real increases in annual funding the government would significantly reduce financial uncertainty and secure medium term resource planning. The NHS Plan set out the government’s objective of increasing funding, in cash terms, by 50% a target increase achieved over the period 1998–2003. This additional real income to acute hospitals would, as we have already noted, be tied into capital and labour process reforms which were expected to combine constructively to resolve problems of chronic under capacity in the health care system. “The biggest problem facing the NHS remains shortages of capacity in staff and beds. The stability provided by the 2002 budget resources will allow the NHS and social services to plan increases in capacity with confidence”.
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