Edmonton, Feb 13 TH 2014 LESSONS FROM THE UK: EXPERIENCES OF P3S AND PRIVATISATION Allyson Pollock, Professor of Public Health Research and Policy Centre.

Edmonton, Feb 13TH 2014

LESSONS FROM THE UK: EXPERIENCES OF P3S AND PRIVATISATION

Allyson Pollock, Professor of Public Health Research and PolicyCentre for Primary Care and Public HealthQueen Mary University of London

British Welfare versus

Nazi Warfare

‘The abolition of want before the war was easily within the economic resources of the community: want was a needless scandal due to not taking the trouble to prevent it.

WillBeveridge, 1942

3

PrestonMarch2013 4

The aim of this plan for Social Security and allied services is to abolish want by ensuring that every citizen willing to serve according to his powers has at all times an income sufficient to meet his responsibilities. Social insurance, children’s allowances and allied services, eg, health, education and housing are primarily methods of redistributing wealth.

Beveridge, 1942

PrestonMarch2013 5

Health and Social Care Act 2012

• Abolishes the NHS in England

• End of Duty on Sec of State to secure and provide health care for all

• New discretionary powers for providers to determine what services are provided and what will be charged for

PrestonMarch2013 6

Four stages of NHS privatisation

• Phase I Efficiency & management1979 control moves away from professionals

Griffith’s supermarket management reforms

• Phase II Internal market1991 purchaser/provider split

public corporations REVERSED IN SCOTLAND, NHS REFORM (SCOTLAND) Act 2004 1998

• Phase III PFI - PPPs1992 privatise asset base & non-clinical services

• Phase IV NHS Plan2000 privatise clinical services- foundation trusts

pricing- financial flows, DTCs etc local pay bargaining - GP/ consultant contracts service unbundling- like post office

Phase V Remove Duty to secure and provide:

PrestonMarch2013 8

Service unbundling:

UK NHS

pharmaceuticals -services

dentistry

ophthalmology

long term care

ancillary services - eg, catering

cleaninglaundry

PFI infrastructurehospitalspremisesbuildings

maintenance

‘soft’ clinical services - pathologyradiology

medical records

GPsnurses &doctors

clinical &non-clinical -equipment

PFI: Lessons from the UK NHS

• PFI : a discredited Public Policy

• Affordability• VFM: cost and time overruns• Accountability• Cost of finance

NorwayJune2013 9

NHS Hospitals

• 159 PFI hospitals• Capital value 13.6 billion (2009-10) • Aggragate of all PFI availability payments is

42.8 billion (2009-10) , service charges 30.7 billion (2009-10)

NorwayJune2013 10

NorwayJune2013

£191.3 billions

£34.7 billions

Capital value and unitary payments for signed PFI projects in Northern Ireland, England and Wales (1990-2008; n=500)

-8000

-6000

-4000

-2000

0

2000

4000

6000

800019

90

1993

1996

1999

2002

2005

2008

2011

2014

2017

2020

2023

2026

2029

2032

2035

2038

2041

2044

2047

years

£m

Capital value in £m Total unitary charge in £m

£34.7 billions

£191 billions

Source: HM Treasury (2008). Signed Projects List (March 2008). Available at: http://www.hm-treasury.gov.uk/ppp_pfi_stats.htm (Accessed: 24 November 2008).

11

NorwayJune2013 12

Loss of Monitoring the true costs of PFI

• Data issues

• 1. No account of additional contributions to PFI schemes - land sales and receipts, NHS capital, Treasury “smoothing mechanisms”

• 2. PFI payments not broken down by sector• 3. PFI payments do not provide split between FM and availability -

therefore disguise true cost of capital• 4. Inconsistent definitions of PFI estimates of capital (capital not

defined)• 5. Revisions to contracts and payments not provided

NorwayJune2013 13

Annual revenue implications of capital costs for 19 PFI hospital schemes comparing costs before and in the first year in which the PFI scheme is

operating: ring fenced charges

12.45.3Worcester Royal Infirmary

12.56.2University College London Hospitals*

12.88.3The Dudley Group of Hospitals*

13.13.4Calderdale Healthcare

13.25.6South Tees Acute

14.63.8Hereford Hospitals

14.74.0Carlisle Hospitals

15.59.3West Middlesex University Hospital*

16.22.1Greenwich Healthcare

16.43.8Swindon & Marlborough

32.76.7Dartford & Gravesham

After PFI (Capital charges + Availability

fee as % of projected income in 1st year of

operations)

Before PFI (Capital charges as % of income 1998-9)

NHS Trust

All calculations include payments to Treasury on existing and retained estate. * Refers to 1999-2000

NorwayJune2013 14

NorwayJune2013 15

Changes in bed numbers at NHS trusts under PFI development Values are average no

’s of beds available daily (all specialties)

(-30.8) (-5.2)Percentage change from 1995-965,5837,6348,063Total

484566660Greenwich465507506Carlisle250384397Hereford Hospitals535732745South Buckinghamshire390699697Worcester Royal Infirmary7361,2381,342South Manchester8091,0081,120Norfolk & Norwich454597665North Durham Acute Hospitals400506524Dartford & Gravesham553772797Calderdale Healthcare507625610Bromley Hospitals

Planned1996-971995-96Trust

NorwayJune2013

Loss of control over planning

‘Unattractive economics’“An incremental investment of £200m might require productivity improvements leading to perhaps 1,000 job losses which might be significantly greater than 25% of the workforce … [This] is probably only achievable by reducing the numbers of doctors and nurses … in the local health care market.”

PFI Futures March 1998Newchurch & Co

16

NorwayJune2013 17

• “The involvement of private finance in taking on performance risk is crucial to the benefits offered by PFI, incentivising projects to be completed on time and on budget, and to take into account the whole of life costs of an asset in design and construction.”

• HM Treasury. PFI: meeting the investment challenge July 2003

Treasury Committee report Aug 2011

• Main benefit claimed was transfer of construction cost risk . However in a PFI contract which lasts 30 years it is not necessary to transfer that risk

• No convincing evidence ..that PFI projects are delivered more quickly and at lower out- turn costs than projects using conventional procurement methods. .

NorwayJune2013 18

Treasury Committee 2011

Increase in private finance costs mean that PFI financing method is now inefficient

•We are concerned that VfM appraisal system biased to favour PFI•Some of claimed risk transfer may also be illusory

NorwayJune2013 19

Treasury committee on Public Expenditure Rules

• Efforts to meet fiscal rules at national and European level may have contributed to misuse of PFI

• Lack of capital and Departmental Expenditure Limits … have encouraged and may encourage poor investment decisions…

……

NorwayJune2013 20

Commercial contracts

• “Contracts [….] have an important function in specifying the risk-sharing arrangements that apply in the face of unplanned events on either the purchaser or the provider side. In short, contracts are a means of steering transactions and sharing or allocating risk.”

NorwayJune2013 21

NorwayJune2013 22

• “There is a cost to the Government’s use of private finance, involving the extra cost of the private sector securing funds in the market, but a great part of the difference between the cost of public and private finance is caused by a different approach to evaluating risk.”

• HM Treasury. PFI: meeting the investment challenge July 2003

NorwayJune2013 23

• “We have sought on a number of occasions to gain an understanding of the relationship between the returns which contractors earn from PFI projects and the risks they actually bear. At present the available information is limited and rather mixed…”

• Select Committee on Public Accounts. PFI construction performance. 35th report, session

2002-03

NorwayJune2013

Source: Response to Scottish Futures Trust Consultation Paper by Jim Cuthbert & Margaret CuthbertMarch 2008

www.cuthbert1.pwp.blueyonder.co.uk/

Projected Dividends on Six PFI ProjectsEquity Input

(£m)ProjectedDividends

(£m)

New Royal InfirmaryEdinburgh

0.5 167.9

Hairmyres Hospital 0.0001 89.14

Hereford Hospital 0.001 55.671

24

NorwayJune2013 25

How PFI contracts obscure the audit trail

• PFI contracting makes it difficult to identify who bears risk

• PFI firms are shell companies that do not bear risk but pass it on to others through sub-contracts

• The main providers of private finance are heavily protected from risk

• Commercial confidentiality used to conceal contracts

NorwayJune2013 glasgow sep 29th 2010

Export of PPPs / PFI to Africa

The Governments of South Africa, Uganda, Botswana, Tanzania, Mozambique, Nigeria, Kenya, Egypt, Senegal, Morocco, Malawi and Mauritius are all at various stages of setting up specialist units to promote greater use of PPPs and pFI in infrastrucure.

Source: The Infrastructure Consortium for Africa: Annual Report 2007.(The ICA was launched by the G8 in 2005. Members are amongst others the G8 countries, the World Bank Group, the African Development Bank, the European Commission and the European Investment Bank.)

26

“Portugal: one of largest PPP programs in the world, cumulative investments about 20 percent of current GDP, or about 13 percent of GDP of depreciated investments.

NorwayJune2013 27

ORGANISING PRINCIPLES OF 1948-1990 NHS

• Redistribution to achieve universality and equity

• Area based structures NOT insurance pools or members

• Free at point of delivery

• Public ownership, control and accountability

• Integration

ORGANISING PRINCIPLES OF MARKETS

Risk Selection and Risk Avoidance

•Risk identification

•Risk prediction

•Risk pricing: the PREMIUM the market charges for bearing the risk

•Risk Allocation

•Risk transfer through commercial contract

Externalising risks

Risk Selection: denial of care, deselection of services and patient services•Loss of coverage, time limits , entitlements shrunk • Increased cost : administration, fraud,profit• Overtreatment and inappropriate treatment • Loss of innovation• Rising Inequalities

Risk Selection/Avoidance Strategies

• Gaming and upcoding

• Cherry picking

• Cream skimming

• Dumping

• Restricting entitlements

• Risk sharing: coinsurance, user charges

US Health Insurance Coverage

Health Insurance Coverage: Early Release of Estimates From the National Health Interview Survey, January—March 2011 by Robin A. Cohen, Ph.D., and Michael E. Martinez, M.P.H., M.H.S.A., Division of Health Interview Statistics,

National Center for Health Statistics

Medical bill/debt problem17.7 million

10%

Cost-related access problem

25.9 million15%

Source: S. R. Collins, J. L. Kriss, M. M. Doty, and S. D. Rustgi, Losing Ground: How the Loss of Adequate Health Insurance Is

Burdening Working Families: Findings from the Commonwealth Fund Biennial Health Insurance Surveys, 2001–2007, The

Commonwealth Fund, Aug. 2008..

Adequate coverage and no bill or access problem

61.4 million35%

Uninsured anytime during the year

17.6 million10%

Medical bill/debt and cost-related access

problem54.4 million

31%

177 million adults, ages 19–64

Millions are Uninsured and Underinsured

Other Insurer Costs and Profit11%

Insurer Billing8%

Hospital Billing4%

Physician Billing 5%

Medical Care Administration

8%

Medical Care64%

Source: James G. Kahn et al, The Cost of Health Insurance Administration in California: Estimates for Insurers, Physicians, and Hospitals, Health Affairs, 2005

Allocation of Spending for Hospital and Physician Care Paid through Private Insurers

Estimated sources of excess costs in US market system of health care (2009) (US Institute of Medicine report, 2012)

(Total spending at 2009: $2.9 trillion; 50 million Americans cannot get health insurance)

PRIVATE SECTOR EFFICIENCIES?

• LOSS OF COVERAGE• TRANSACTION COSTS: BILLING , INVOICING

AND MARKETTING• PROFITS AND RETURNS TO BANKERS AND

SHAREHOLDERS• OVERTREATMENT • UNDERTREATMENT• LOSS OF INNOVATION