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The return of PFI
will the NHS pay a higher
price for new hospitals?
November 2014
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The Centre for Health and the Public Interest
to health and social care policies based on accountability and
the public interest.
The Centre seeks to frame the policy debate in a way that is
evidence-based and open and
The author
Dr Mark Hellowell
Dr Mark Hellowell is a Lecturer in Global Health Policy at the
University of Edinburgh. His research
Published by CHPI
Email: [email protected]
www.chpi.org.uk
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The return of PFI will the NHS pay a higher price for new
hospitals?
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Contents
NHS Trusts and their ability to deliver sustainable healthcare
services
Why would an NHS Trust agree to a PFI deal if the charges
are
References 18
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The return of PFI will the NHS pay a higher price for new
hospitals?
4
factor.
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The return of PFI will the NHS pay a higher price for new
hospitals?
they have signed up to the contracts because there is no other
way of
meant that PFI investments are not counted as part of public
spending or
health economies and their ability to address health need.
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The return of PFI will the NHS pay a higher price for new
hospitals?
1.
1 The
emergency unit and maternity services at neighbouring University
Hospital
2.
*
2
successor PF2:
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The return of PFI will the NHS pay a higher price for new
hospitals?
How do large PFI hospital schemes impact on
deliver sustainable healthcare services to local
hospitals and schools and receives in return a revenue stream
from the
6
6.
last decade
most respects analogous to a sovereign debt commitment: the
state commits
8
8.
billion in todays money.9
responsibility for making the annual PFI payments rests with
individual NHS
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The return of PFI will the NHS pay a higher price for new
hospitals?
8
9.
regime used by NHS England to fund NHS hospitals does not
provide any
to what would be possible in the absence of these charges.
10.
types of investments that carry a similar level of risk.
11. Empirical research has shown that the rate of return on PFI
deals typically
the minimum acceptable return on their investments.10
12.
11
11 Returns
selling their assets.12
These returns show that contract prices have been set
high annual PFI payments.
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The return of PFI will the NHS pay a higher price for new
hospitals?
Why would an NHS Trust agree to a PFI deal if the charges are so
high and are likely to be
fallacy.
16.
* In this
the wider healthcare system or social welfare more
generally.
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The return of PFI will the NHS pay a higher price for new
hospitals?
10
12
18.
19.
scheme.12
20.
address these issues.
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The return of PFI will the NHS pay a higher price for new
hospitals?
11
21.
22.
and that assets are maintained to a high standard throughout
their lives. To
To achieve this the government changed the types of investors
who would
the debt capital.16
is reduced to simply maintaining the facility at the standard
contractually agreed.
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The return of PFI will the NHS pay a higher price for new
hospitals?
12
26.
annual PFI payments.
28.
* the intended change in
original PFI deals.
PFI PF2
Cost Weighted Cost
Cost Weighted Cost
Equity Equity
Debt Debt
Pre-tax Weighted Average Cost of Capital Pre-tax Weighted
Average Cost of Capital
29.
to generate a lower overall cost of capital than would be the
case under an
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The return of PFI will the NHS pay a higher price for new
hospitals?
13
that not all of the funds to build and run the hospital will
come from the private
Cost Weighted Cost
Private equity
Debt
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The return of PFI will the NHS pay a higher price for new
hospitals?
14
a lower probability of default. This may mean they are able to
charge a lower
the cost of private sector capital to be paid by the public
sector over the period
therefore apparent that the move to PF2 will not address indeed
is likely to
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The return of PFI will the NHS pay a higher price for new
hospitals?
whether the schools and hospitals built under PFI appear in the
main measures
*
any capital investment which is secured under PF2 will not be
counted as
increased by it.
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The return of PFI will the NHS pay a higher price for new
hospitals?
investments to be agreed in each year.
for budgetary reasons at central government level i.e. there
will be a limit to
framework.
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The return of PFI will the NHS pay a higher price for new
hospitals?
Conclusion
increase
the capital budgets available to government departments and
individual public
health economies and their ability to address health need.
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The return of PFI will the NHS pay a higher price for new
hospitals?
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References
1 Securing sustainable NHS services: the Trust Special
Administrators report on South London Healthcare NHS Trust and the
NHS in south east London
2 BMJ
PFI projects data: March 2013
A new approach to public private partnerships
DH approval of Outline Business Case
6 Review of the European PPP Market: 2012
8
.
9
Health Policy
10
Health Policy
11
and Norwich PFI hospital: how the deal can be viewed in the
12 Peterborough and Stamford
Econometrica
A new approach to public private partnerships
16 A new approach to public private partnerships
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