A perfect storm

2 April 2012 As the NHS undergoes radical surgery, opportunities exist for innovative partnerships Peter Ward, director of healthcare projects, John Laing
thumb
The NHS in England is facing unprecedented reform. The decade from 2000 to 2010 saw funding of our health system grow from £45bn to £110bn – a rate of growth of 7% per year – and dramatic improvements in access to treatment, the quality of patients’ experience and the reduction of health inequalities.

But most of that increase in funding was spent on pay, reducing efficiency and productivity. The NHS has now been tasked with finding dramatic improvements in efficiency at a time when the health service is undergoing the largest single reorganisation since its formation, and demand for high quality, personalised care has never been greater.

Meanwhile, sources of finance to enable it have changed dramatically and are likely to continue to evolve, at least in the short-term. This environment could represent a significant opportunity for private sector partners willing to work flexibly to help NHS Trusts and Foundation Trusts meet these challenges and provide better care for their patients.

Following its election in 2010, the coalition government published a white paper which sought to shift power from managers to clinicians, reduce bureaucracy and put patients at the heart of the NHS – while committing to continued increases in NHS funding in real terms and avoiding top-down reorganisations. The Health and Social Care Bill which followed calls for patient choice for all NHS funded care by 2013-14 and requires all providers to become Foundation Trusts – removing constraints on their ability to compete, borrow and secure income from increasingly diverse sources.

The bill also calls for a significant reorganisation of the structure through which care is commissioned: by replacing primary care trusts and strategic health authorities with GP commissioning consortia and a central commissioning board, it targets a 45% reduction in management costs and a reorganisation of clinical training.

In parallel with these changes, following a decade of 7% annual growth, the NHS must find £20bn in savings – equivalent to a 4% annual reduction in its budget for the next four years – without reducing the quality, safety or accessibility of patient care.

It will be difficult to do this. NHS Foundation Trusts will undoubtedly find ways of providing services more efficiently; they will need to do so as they increasingly  compete with private providers and as commissioning GPs refer patients on grounds of efficiency as well as need. But they are likely to need to substantially reconfigure their services, and there is still likely to be a need for increased healthcare funding from taxation, co-payments or insurance which has historically generated acute political tension.

Meanwhile there have been significant changes to the appetite of banks and other institutions for investment in infrastructure that could help support the reconfiguration of services. As banks are subject to increased liquidity and regulatory costs, their appetite for long-term project lending is contracting.

While a significant number of banks are still willing to lend to government-secured long tenor infrastructure projects, the need for experienced sponsors with good quality relationships has never been greater.

Experience across a number of sectors and in different international markets has given some sponsors useful insights into different ways to secure funding. And there has been strong recent interest in UK infrastructure projects – particularly in the healthcare sector – by sovereign wealth funds, and pension funds based in the UK and overseas.

While new sources of funding are welcome, they come with a range of financial and commercial expectations that may not match the standardisation of healthcare infrastructure procurement under PFI. So it will be important for sponsors, NHS Trusts and other stakeholders to have a strong grasp of their fundamental drivers and be willing to consider new and innovative ways of meeting them.
There has been widespread challenge of the need for reform of the NHS, but there is evidently a need for efficiency that will allow more patients to be treated to a higher standard. Almost all providers are contemplating partnerships with public or private sector organisations as they look for ways to diversify their income, secure economies of scale through growth, and reduce costs by making patient pathways as efficient as possible.

The infrastructure that will allow them to do that is likely to be different from the major schemes procured under PFI. To be successful it must be flexible enough to adapt well to providers’ commercial environment, changing case-mix and emerging technologies – just as one would expect of infrastructure in the retail, banking or manufacturing sectors.

The solutions each provider needs are likely to be equally diverse, so any emerging infrastructure procurement policy must be as flexible as the operational policies the infrastructure itself will serve. Successful infrastructure public-private partnerships in the next decade are likely to be characterised by committed, experienced parties without vested interests, working flexibly together to find the right solutions to improving operational efficiency in the long-term interest of patients.

This page was last updated on:
2 April 2012.

thumb

What Would Ed Do?

A recent comment on a young people’s forum has raised further questions over how a Labour government might use private finance in infrastructure projects

thumb

The Anglophile

After a difficult start, FCC’s Rafael Foulquié is confident that the firm’s UK office will go from strength to strength. He tells Paul Jarvis why

register

Register now to get un-restricted access to all sections of the website.

Want to see more first? Try our free preview...