The Private Finance Initiative
The PFI, or Private Finance Initiative, has been called by the Labour Government as “The Third Way”. It is seen by the political leaft as a procedure by which a public institution remains public only by name. It is managed and profited from by a -usually multinational – company that charges the public institution (the NHS in case of health care) a rent for the premises and the running of the services.
PFI was ‘invented’ by the Tory government. It decided that when public services needed improvements at a cost of more than 10 million pounds, the public body would need to consider contracting out those improvements if it was more cost-effective to do it via the private sector with that via the public sector. The Labour government has gone a bit further: in the words of Alan Milburn, the secretary of state for health, that “it’s PFI or bust”: forget testing – the only money the government will allow hospitals to receive for refurbishment is private money.
George Monbiot, regular columnist in The Guardian, has written a book called ‘captive state’, where he describes how public services are being sold off to private corporations. He states that renovation schemes are too small to generate serious profits, so big corporations do not tend to bid for such schemes. As a result, the NHS needs to build a new hospital where all that was needed was less costly renovation.
Then a bidding process starts, which has to be international. Private corporations compete for the contract offering good prices. The NHS selects the “preferred bidder” according to set criteria and starts negotiating. The company then rises the initial price and lowers the services it can offer, discovering new risks and/or exaggerating the financial risks. In theory the NHS could de-select the preferred bidder, but an insider who prefers not to be named said ‘I am not aware of a single instance’ of this. The price of the project can rise 2 or 3 times before the final contract. All this is documented in ‘Captive State’, by George Monbiot.
If the hospital is located in the centre of a city, the company will want to destroy it, build another one in a less central location. This happened in Coventry, where the company sold the land in the centre.
Once the final contract is signed, it can not be amended. The NHS is then locked to a contract that can last from 25 to 30 years. During those years, says John Saxby, manager of two PFI hospitals, the NHS pays the private company a rent for the premises and any additional services it provides. The rent is in return for the investment and will necessarily include a profit element. Otherwise, Mr. Saxby adds, the private companies would not put the money in the first place.
The companies make a profit also from the loan system. To build a hospital, a company borrows money from the banks. Interest rates are high according to the risk of the enterprise – if money was lent to the Government instead, the rate would always a lot lower, as it is considered the most secure borrower. So when a private company borrows money to build a hospital, that loan is already more expensive than if it had been publicly borrowed money. However, once the hospital is built, most of the risk dissappears because the company has a guaranteed income from the NHS for 25 to 30 years.
Together with Private Finance Initiative, or PFI, Foundation Hospitals are the new privileged status that some hospitals can achieve, as part of a programme to reform the NHS.
One of the problems of the foundation hospitals program is the way the criteria are applied. Foundation Hospitals are based on a star rating system. Once they get three stars they get Foundation status. They get these stars by government targets. These targets are based on waiting lists, they try to see as many new patients in one day. But there are no targets for follow up appointments. In an eye hospital, it was found that most existing patients were being neglected, as doctors were forced to give priority to new cases over existing patients that were already being treated. As a result of this policy in this hospital 25 people who were receiving treatment lost their sight.
Another problem is what happens after a hospital gains this status. More precisely, what happens in such hospital in relation to other hospitals that don’t gain that status. Foundation hospitals will have complete freedom to contract services with the private sector. They also have freedom to contract medic staff at higher prices than standard. They are also free to use their financial resources to buy equipment without consulting with any local or national authority. The logical result of this will be, that the best doctors in the country will concentrate in these hospitals. Staff in the hospitals that don’t have foundation status will want to move to these hospitals, rather than improve those they are working on, unless they get that status. Before, each hospital had to give up an amount of money called ‘surplus’ to the National Treasury. This body would then re-distribute this money according to each hospital’s needs. Now this will change. With the foundation hospitals’ autonomy, richer hospitals will keep that surplus, will improve their equipments and will employ the best (and most expensive) staff. And poorer hospitals will keep their poor status because they can’t afford new equipment or proper training for its staff.
One reason the Government is giving for these changes is that the control of hospitals needs to get back to the community, rather than the central government as is the case now. But the fact is, these hospitals will be dealing their services with private companies. These companies are more often than not translational corporations. With that central control, hospitals would have the backing of the UK government when dealing with those companies. With foundation hospitals, when private interests of a company clash with the public interests of a community, the local councils will be left alone with their hospitals.
Unison, the nurses’ main union, is strongly against these foundation hospitals and believe they threaten the very principles of the National Health service.
The two new forms of hospital – management, Foundation Hospitals and Private Finance Initiative- include the privatisation of services like, catering, portering and cleaning. Managers of PFI hospitals like John Saxby deny it, but hospitals workers assert that privatised services are worse than those provided by the NHS.
One possible reason for that is that, for the private companies, unlike the NHS, their main objective is the maximisation of profits. Companies that operate in the private business market do that by charging as much as possible for a product or service that costs as little as possible. But companies that participate in the services of the NHS have their income fixed by a contract. That leaves the cost as the only factor the companies can play with – and they do.
A big part of the cost is the workers’ wages, and their training. One the cleaning service of a hospital is newly outsourced, the workers that used to work directly for the NHS have to be contracted in the same NHS conditions by the private company. But, when new workers join the company, the NHS is no longer the employer, and the company is completely free to impose new -and invariably worse- conditions. John Saxby, Chief executive of the county of Durham and Darlington hospital trust, committed to PFI , says: “If staff leave the private sector provider and new people come in and join directly then the private sector can offer them their new terms and conditions”. Ron Finger, head of a medical union, explains: “When the NHS employs some one it employs them under a specified grade and according to national conditions of service. When a private employer employs some one then the NHS has no control over who is employed, what skills they have or what are paid. And the feeling is that the private firm coming they offer people minimum training to do jobs like cleaning hospitals and they pay them very poorly.”
This results in dirtier hospitals and risk of infection. One example was the outburst of MRSA, a contagious virus. A number of nurses maintain that people were dying of this virus instead of the problem for which they came into hospitals. They also agree that one of the main reasons for this outburst was the dirty state of the hospitals due to privatisation of the service.
In Ron Finger’s opinion, the private sector cleaners are more interested in the profits they make than in how clean the hospitals are. “The privatised services exist to cost the hospital a minimum amount and to make the maximum amount of profits for the private sector, that is how it works, and that’s why many of us are unhappy about that sort of involvement of the private sector in the NHS.”