‘PFI lessons to learn’ for next health infrastructure financing model

Zoe de Courcy and Joanne Ellis of Pinsent Masons were commenting after NHS Confederation described the NHS capital regime as being “broken” and called on the UK and devolved governments to enable private investment.

NHS Confederation is a membership body made up of NHS managers across England, Wales and Northern Ireland. In a new report, the body made a series of recommendations aimed at ensuring additional funding is put towards the NHS estate, technology and equipment, as well as at ensuring the money that is available is spent more efficiently.

Among other things, NHS Confederation called on government to provide longer-term certainty over capital budgets and for the powers to manage those budgets to be devolved to those that run local healthcare systems.

In relation to private finance, NHS Confederation said it would be needed to enable the NHS to deliver on the 2% annual productivity targets that have been set out by NHS England. It said the Treasury, Department for Health and Social Care, and NHS England should “change national policy and guidance to allow new routes for private investment”, such as by embracing Mutual Investment Models, and that they should “support an attractive investment market through policy stability and a steady pipeline of projects”.

“For decades we have consistently invested less than half as much as our OECD peers,” NHS Confederation said. “Changing national policy and guidance to allow new routes for private investment and supporting an attractive investment market can help meet the productivity challenge and fill the existing gap in capital funding.”  

De Courcy, who specialises in project dispute resolution, said the call for use of private finance to ensure vital funding for health infrastructure will be welcomed by many, but that there are important lessons policymakers must learn from how the private finance initiative (PFI) model has been operated, to ensure any new financing model succeeds.

“The White Fraiser report noted that the healthcare sector in particular was 'very adversarial' when reporting on the status of behaviours, relationships and disputes across the PFI sector,” she said. “To realise the aims of the sector and encourage private finance investment, it will be critical to ensure that any new models take into account lessons learnt from the past and that partners adopt a clear contract management strategy to mitigate the risk of disputes."  

Ellis, an expert in healthcare transactions at Pinsent Masons, added: “It is interesting that the healthcare PFIs have been so much more adversarial than other sectors when in essence the contract terms will have been very similar to education and other markets. It is also notable that other successful large scale healthcare funding models have failed to emerge in the last 20 years and we are back with the suggestion of a similar financing solution for healthcare infrastructure and investment which for many is still the only acceptable level of NHS private funding that will be tolerated.”

“However, the healthcare service delivery models and priority areas have changed in the last two decades from the large scale ‘centres of excellence’ of the original PFI’s towards patient-centred care, more community-based settings, the use of alternative access points, such as retail, and a greater shift in focus towards mental health and crisis care – as well as prevention and early intervention. Patients are now more literate, well-informed and willing to travel. A new private finance model for infrastructure may sound like old school PFI, but projects are likely to be to more complex with fewer hard assets and more digital input so the learnings around accountability, flexibility and risk management will be at the centre of whether or not the new schemes would be successful,” she said.