Evolve

Procuring Premises In The NHS

Not surprisingly there is often a lot of confusion within the NHS on the most appropriate procurement route to follow when embarking on a complex service led re-provision. If a primary care trust is within an NHS LIFT (Local Improvement Finance Trust) then it may feel that this is the only game in town. Yet already LIFT is seen by many as far too expensive to deliver real value for money over the longer term. Similarly PFI (Private Finance Initiative) has had its critics and whilst the brakes haven’t been firmly applied to future schemes there is now a requirement for NHS Trust boards to consider longer- term affordability carefully.

Unfortunately for NHS organisations not within LIFT areas and having projects, which may not be attractive to the PFI market, procurement options are far less defined. At a time when skills are leaking away from the NHS, central DH support is stretched, old NHS Estates guidance is getting past its’ shelf life, trust re-organisations are prevalent, financial recovery is on many finance directors’ lips and payment by results is about to ramp up then no wonder some trusts are finding it difficult to know which way to turn.

Let’s look first at the PFI market. Until recently it appeared that the rug was about to be well and truly pulled from under its feet. The Queen Elizabeth Hospital in Woolwich declared itself technically bankrupt, large windfall profits were made by the banks and property developers on the refinancing of the Norfolk and Norwich University Hospital, the refurbishment of St Bartholomew’s looked as if it may not be given the go ahead and over a dozen high profile schemes are having to take a long hard look to see if they can make the figures stack up.

A big problem for Trusts is that payment by results is introducing a competitive market place and if the future for healthcare delivery lies in primary care the large edifice hospitals may well and truly be the big white elephants that many perceive them to potentially be. The trouble is that under payment by results income is insecure and tariff pricing based on average costs makes it impossible for the trust to charge higher prices. Certainly payment by results does not reflect capital outlay required. Unless volume increases significantly for these trusts many see the PFI regime with its’ fixed costs over the length of the contract as a millstone around the necks of the trust boards. The government insists that it will continue to support PFI schemes but the industry is less than convinced.

For those with Foundation Trust status, there is potentially an alternative to PFI with their new found freedoms, namely, ability to retain proceeds from asset sales of land, raise capital in the public and/or private sectors and manage their resources – free from Government direction. In theory NHS Foundation Trusts are free to use any financial surpluses to invest in new assets or ventures. Access to capital however is driven by such Trusts’ ability to pay and how much they can borrow will subject to a prudential borrowing limit. Again payment by results and a trusts long-term financial stability is a key driver for future procurement and the jury is out regarding the impact of prudential borrowing.

If the Acute sector is hitting the buffers then what about developing new facilities in primary care? With over 50 NHS LIFT projects in four waves already having been approved many view LIFT as a success. Yet it is not without its critics and many cite red tape bureaucracy, delays and high upfront costs as commonplace. Bid costs are exceeding £0.5 million a time and with a one in three chance of winning no wonder the private sector is cautious. This adds to the high costs per square metre and many Local Authority partners are shying away from full participation because of this. If LIFT is about new premises it doesn’t appear to be about innovation or service driven provision and certainly in several LIFT areas subsequent tranches of developments are beginning to falter as PCTs, who are also undergoing significant reorganisations re-evaluate their future service requirements. New DH guidance out advises PCTs in LIFT schemes that if they are developing a large and complex single scheme with a value of over £25 million that the standard form of PFI contract must be used to ensure appropriate risk transfer, payment and performance mechanisms are in place.

For primary care trusts not within a LIFT area then it is possible to go down the Third Party Developer (3PD) route. Unfortunately many view 3PD developments as a means of replacing substandard GP accommodation and with 70 per cent of GPs still working in such accommodation it is perhaps not an unreasonable view. Indeed the 3PD route for such developments is tried and tested and appears to deliver more cost effective accommodation than does LIFT. However whether GP led or PCT led, the private sector have until now been extremely risk averse when it comes to developing primary care centres and have required occupiers to sign up to medium/long term lease of between 15 to 25 years.

Due to the speed of change now occurring within the NHS how can the government, SHAs and commissioners expect NHS organisations to plan 25 to 35 years ahead and financially commit to a specific procurement option. The service needs flexibility so that it can change as healthcare delivery changes.

The DH Independent Sector Treatment Centre (ISTC) Programme (aimed at increasing capacity around elective surgery) took a radical step in the way services are procured. Hated by many within the system as undermining the foundations of the NHS it nevertheless has thrown out a challenge to procure services not buildings. Services under the ISTC programme are delivered from a range of facilities including NHS and privately owned, in refurbished or newly built and radically also from mobile units where this makes sense. Leasing accommodation rather than owning often makes economic sense due to the short- term contract length (5 years). Importantly the ISTC programme is challenging the market place to be competitive. Future waves of ISTC will also focus on medical treatments and diagnostics getting to the heart of the shift from secondary to primary care.

What therefore can we expect for the future of primary care procurement? Partnership working between primary and social care organisations and that of the private sector is set to increase. Providing a range of services from a single building including GP services, minor injury, minor surgery, diagnostics, therapies, optometrists, dentistry, primary social and community care, health etc will be required. A desire by many to focus on the community may require health promotion facilities, a crèche, health related shops, coffee bar, training facilities, gymnasium etc. The idea of a new style community hospital is therefore reborn and it is not surprising therefore that the new white paper “Our health, our care, our say: a new direction for community services” makes direct reference to bringing services closer to home through investment in community hospitals, shifting care away from hospitals as well as increasing the number of walk in centres.

Funding such facilities will be a challenge. Forming joint venture partnerships between stakeholder organisations will be key and specifying initial requirements will be necessary. Creating facilities where a range of occupiers can work alongside each other and take flexible leases will also be needed. Private sector developers will have to become less risk averse, creating dynamic health accommodation and providing an a la carte menu of facilities of services for occupiers. Occupiers will of course pay for flexibility of space usage. Nevertheless at a time when procurement options are complex and bureaucratic it needs the private sector to step up to the line and create something dynamic and fundamentally different.

Already a very small number of private investment companies are expressing a desire to fund and develop fast track primary care centres at their own risk. They are shrewd enough to look at supply and demand and to understand that the right accommodation in the right place with sufficient flexibility will find willing tenants. In addition they understand how they can bolster income via retail units, meeting space, gymnasia etc. Furthermore private sector health providers are pushing at the doors of the NHS understanding that it is service not premises that are the drivers in a modern health system. Importantly such an approach avoids the need for PCTs to jump through bureaucratic approval hoops.

APMS (alternative provider of medical services) can allow PCTs to commission additional primary medical services from non-NHS bodies, such as voluntary sector and not-for-profit organisations or with GMS/PMS practices. Whilst this will be useful in allowing PCTs to plan innovatively in the way it delivers services it does not get to the heart of joined up procurement.

Unfortunately for NHS Trusts guidance on procurement is not always clear, is past its shelf life and often does not cope with the need for joint venture type arrangements where there is a mixture of service provision and new premises requirements. It is not unknown for SHAs to take existing guidance as a mandatory rulebook or to force trusts down a lengthy and potentially unnecessary traditional business case approval process route. The NHS requires a range of procurement solutions in its armoury. It also needs champions within the service who are not afraid to demand something different and create the most effective service solution for their particular organisation.

Our Consultant

Our consultant is a chartered surveyor by background with 20 years’ private and public sector experience of project and property procurement and management. He has worked throughout the DH and NHS and now advises and supports senior management within client organisations on service change and procurement delivery strategies.

Please post comments or questions arising from Evolve Thinking to evolvethinking@evbc.co.uk. All contributions are welcome.