While private finance initiative hospital contracts are currently performing well they could prove to be an Achilles’ heel for some health trusts scrabbling to make efficiency savings in future, a report by the National Audit Office has found.

An investigation by the NAO has concluded that, while there are some concerns over the quality of data available, the majority of contracts under the somewhat controversial PFI scheme are currently providing the value for money expected from them upon signing. However, it has warned that risks to the long-term value of these contracts remain.

Under the PFI scheme - first dreamed up by the Conservatives in the early 1990s and subsequently taken up by New Labour in 1997 as a means of securing new hospitals, schools and roads without an immediate impact on national debt – trusts award contracts to private contractors to build and maintain hospitals which are then effectively leased back to the state.

On the health side things there are currently 76 operational PFI contracts in England, costing around £900 million a year, 39% of which are operated by Foundation Trusts, 49% by NHS Trusts and 12% by Primary Care Trusts.

According to the NAO’s report, 67% of trusts said they are satisfied with their contracts, and reported a consistent or improved performance over time. In the same vein, the level of penalties issued to underperforming contracts is considered to be low, with 53% charging no deductions in 2008-09 and the remainder only dishing out small ones.

However, the report highlights that there is room for improvement, as 33% of trusts said they were dissatisfied with at least one of the services provided by their PFI contracts, and none ranked all the services provided as excellent. On the other side of the coin, some trusts are failing to sink enough resource into managing contracts, in fact in 12% of cases trusts had failed to assign anybody to manage the project.

A key issue for trusts going forward is how to save cash at a time when funds are drying up and demand on service is surging, “but their ability to make savings from their PFI contracts is limited”, the NAO stressed, and said it saw “little evidence of partnering work between contractors and trusts” to drive down costs. Moreover, “investors and contractors will naturally seek to maximise their profit margins, and we have seen examples where this is at the expense of the Trust”, it noted.

Financial instability?
The British Medical Association is strongly opposed to the PFI scheme and commercialisation of the NHS in general, and according to Mark Porter, chairman of its Consultants Committee, “the debts attached to PFI schemes and the lack of flexibility in repaying them hugely increase the financial pressures on NHS trusts”.

“While future funding for the NHS is uncertain, payments to private companies under PFI will burden local health economies for decades,” and “this inflexibility has created financial instability in the NHS and ultimately makes cuts and closures more likely”, he stressed.

Amyas Morse, head of the NAO, said the indication that most PFI hospital contracts are well managed and offer the value for money originally envisaged is “a positive result”, but added that, long term, “trusts will need support from the Department of Health to ensure that the current good performance is maintained, that efficiencies are sought and that an appropriate share of benefit comes back to the public sector”.