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NHS: Finance

Volume 686: debated on Friday 3 November 2006

rose to ask Her Majesty’s Government what proportion of NHS finances are currently spent on the private sector; and what is their estimate of the likely rise or fall of this proportion in the future.

The noble Lord said: My Lords, I would like to start by thanking the noble Baronesses, the noble Earl and the noble Lord who put their names down to join this mini-debate on a Friday. I particularly apologise to Front Benchers who, perforce, have had to stay on a Friday. Unfortunately, it was the only slot available to me.

The increasing role of the private sector in the National Health Service is causing widespread concern, including to all the professional organisations in the NHS. That was expressed strongly at the TUC and Labour Party conferences this year, as well as at Wednesday’s lobby of Parliament. I declare an interest as a medical practitioner who spent most of his professional lifetime working for the NHS.

I expect that my noble friend will express the view of the Secretary of State that the use of the private sector by the NHS is not the same as privatisation of the NHS and that, as long as it is free at the point of contact and financed through central taxation, ithas not been privatised. However, increasing therole of private profit-making organisations—often transatlantic—in delivering services and in the management of the NHS is expensive. The private sector may be useful in shortage areas, though costly, but it is frequently unnecessary and may eventually undermine the integrity and comprehensive nature of the NHS. Like the Secretary of State, my noble friend may think that supping with Mammon is safe if a sufficiently long spoon is used. I wonder.

Because of time constraints I will concentrate on only two areas—the private finance initiative and independent sector treatment centres. However, I would like briefly to list some other current examples of this increasing trend, such as outsourcing the commissioning function of PCTs, privatising the management of GP services, the unbundling of primary care services, the sale of NHS logistics—to a very doubtful new owner—and privatising oxygen supplies in the community, pathology services and non-emergency ambulance services. Then there is the fiasco of outsourcing the NHS IT system, but I think that that might defeat anybody.

In the mid 1990s, public sector funding for capital projects became very scarce, and that continued in the first austere years of the present Government. By the time of Labour's success in 1997, the private finance initiative was up and ready to go—and there has been a virtual bonanza of PFI-financed hospital building, which has often been welcomed by patients and clinicians alike. The high cost of the projects has, however, led to the downsizing of the number of beds provided and it has increased the pressure on staff to reduce throughput times, often to a stressful level.

PFI costs over the whole of a contract will almost certainly be considerably greater than the public service comparator would be. PFI consortia charge a rate of interest well above bank rate on the capital that they raise. This interest represents a significant proportion of NHS finances, paid for by the trust concerned. It should be considered as money diverted to the private sector.

Andrew Lansley MP obtained Department of Health data giving a sum of £53 billion to be paid by NHS trusts over the next 30 to 40 years for completed PFI projects with a capital value of £8 billion. I would be grateful if the Minister could disaggregate this unitary sum of £53 billion into its component parts. What proportion represents the “availability charge”, covering rent, interest on capital, and maintenance? What proportion represents non-clinical service provision of the PFI consortium? I expect that profit is made in all these areas, but this will be difficult to dissect out due to commercial confidentiality. I realise that I am venturing into complex territory, but I also suspect that there is a deliberate tendency to present PFI statistics in an obscure way. The Minister may need to write to me about these details. I have a further question: how often does ownership of the assets revert to the trust at the end of a contract, and how often do the assets remain the property of the PFI operators?

PFI may have seemed an efficient way to get buildings up and moving quickly, with risk shouldered by the PFI consortium. However, this has been at considerable cost to the financial health of many trusts with large PFI schemes—as the Audit Commission notes in its report Learning the Lessons from Financial Failure in the NHS—and it has been a stone around the neck of the NHS as a whole. I suspect, like the eminent economists whom I have consulted, that the use of PFI has actually been the reverse of prudent. The repayments continue for half a lifetime and will therefore partly fall on the next generation—and, of course, the next few Chancellors.

The Health Select Committee of another place reported on independent sector treatment centres in July and the Government have recently responded. It is clear that some waiting lists were already falling rapidly before the ISTC scheme got off the ground, largely because of the decision to separate the treatment of elective cases from acute and emergency services. This was achieved within the National Health Service partly through the 46 NHS treatment centres. In the case of cataract surgery, for example, NHS operations increased from 62,000 a year to 210,000 a year in the five years to 2005, and the average waiting time fell from 200 days to 70. During the same period, ISTCs carried out less than 2 per cent of this number of operations on cataracts, so their impact on the waiting list reduction was minimal. It is interesting to note how much the number of operations rose. That was because, once waiting list times had gone down, many people who had previously been allowed to sit at home with their disability persisting were referred by their GPs. During this same period up to 2005, the more complex procedures also reduced their waiting times a little, but much less dramatically. They were mostly falling before the ISTCs made a significant impact.

ISTCs are popular with patients, but there is no difference in the standard of clinical care given, according to a recent Healthcare Commission report. On that point, is my noble friend satisfied that inspections of ISTCs by the Healthcare Commission are as rigorous as those in NHS facilities? That has been questioned.

ISTCs can have adverse effects on the National Health Service. It is now a requirement that patients on referral must have a choice of at least one independent hospital. That has resulted in some NHS facilities being underused and the trust concerned losing money because of the payment-by-results scheme. The “take or pay” arrangement means that NHS trusts are virtually forced to refer patients to ISTCs and other private facilities. In its evidence to the House of Commons Select Committee, the Royal College of Surgeons said that there was “cherry-picking” of the more straightforward cases by ISTCs, leaving the high-risk patients with the NHS, which thus has a slower turnaround and loses payments.

The removal of straightforward cases to ISTCs has also had a deleterious effect on the training of junior doctors and nurses. The Government say that training will be increased in ISTCs, but training costs money. Will new money be made available for that, rather than requiring payment from the already stretched budgets of postgraduate and undergraduate deans?

I have more or less come to the end of my time, but I have just scratched the surface of the topic. I have tried to show that there are alternative ways of achieving the results claimed for the private sector. It is held that introducing competition and market discipline will increase efficiency to more than cover any profit taken. I want robust evidence of that. At no point has there been serious evaluation of any private sector scheme before it has been introduced into the NHS on a fairly wide scale. Innovative NHS alternatives, such as NHS treatment centres, have not been given the chance to demonstrate their full effectiveness. I very much hope that the Government will pause for thought before going further down a road that risks fragmenting and destabilising a much valued institution.

My Lords, it is extraordinarily difficult for me to be sandwiched between two great people from St Thomas's. My only activity relating to that great hospital opposite is that, for 10 years, I was a director at a construction company who built the new children's wing. Also, St Thomas's—or Guy's and St Thomas's—were appointed by the Government as lead commissioner to evaluate international hospitals that might be suitable for treating British patients. I found that an extremely interesting scenario.

Today, I want to try to evaluate what we mean by private sector. I start with the simplistic terms that we are all private people who are members of the general public who voted at an election and, in general, believe that there are certain essential services—we can call them public utilities—which should be provided by the state in the most appropriate manner. The greatest of those by far is health. I stand fair and square behind the principle that healthcare in this country should be free at the point of delivery. The question is: who pays for the infrastructure, who pays for the services and who pays for the support?

Have the Government effectively mortgaged their souls and bodies for the future? The word mortgage means death grasp or death wish. I am concerned about that as an ex-banker because I never support any word that begins with “p”, or “PFI”. To respond to some of the questions raised by the noble Lord, Lord Rea, the PFI structure was set up with the best of intentions. Before, there was very little public expenditure on new buildings. Frankly, I preferred the original Ministry of Public Building and Works; I have always preferred public procurement for public buildings. Today, however, we have £2.5 billion of expenditure under the first PFI stage, and expenditure under the next two PFI stages will come to about£12 billion. That is an enormous amount of money.

The structures that were set up for this were set up in good faith because they estimated that there would be an adequate cash flow into these hospitals to meet the costs and to provide a margin for development and maintenance. Unfortunately, however, there is a shortage in that cash flow because there is a shortage of patients. There is a shortage of patients because there is a shortage of finance to finance the operations of the patients. An extremely serious situation is developing. Added to that is an amazing factor; we do not need as many hospital beds as we thought we did. I have spoken in your Lordships’ House about the strange comparison with international figures. We have a million people working in a health service with 200,000 beds, the French have 500,000 people in a health service with 400,000 beds, and the Germans have 650,000 people in a health service with 500,000 beds. Do we have too many people? If we do, do we have too few facilities?

The Government’s 2005 plans to reduce waiting times were that every patient should have four tofive choices of hospital for operations. They also declared that, by 2008, the waiting time would be only 19 weeks and that everyone would have freedom of choice. That meant freedom of choice everywhere. Will the Minister say whether that means that, under EU regulations, it is now possible for a patient who cannot get an operation in the United Kingdom to seek an operation in the EU and be funded by the United Kingdom?

There is another worry. We had a great health service, and we have great people, but this division between the private and public sectors is strange. Every consultant whom I know, and I know a fair number, works both privately and publicly. He works in National Health Service hospitals or in private hospitals, but he spends a large amount of his time dealing with bureaucracy or on teaching and training, and the waiting lists seem to be getting longer. I made a few inquiries, and found that it is true that the waiting time to see a GP is now probably two weeks instead of four. The moment you see a GP and ask for a referral to a consultant, you are given the option to choose four hospitals, two of which may be near to you and two that may be specialist, but by the time you get through on the telephone, you find that there is no hope of ending up with an appointment. It generally takes between 45 and 47 days to get an appointment but, having got that appointment, you may need a scan or other equipment which leads to a longer delay before you get on to the official waiting list. According to the last waiting list figures given to me by the Government—the best way in which to get figures from the Government is to go to the House of Lords Library; it is much quicker—the waiting time for a knee operation is 39 weeks once you are on the waiting list, and 20 or 25 weeks for other things. I believe that these are the longest waiting lists in the world.

At the other end of the scale, the hospitals do not have enough patients. They are also restricted from taking international patients. I am not suggesting that international patients should replace British ones, but if sufficient funds are not being made available to the primary care trusts so that they cannot pay for their patients to be treated in the United Kingdom, we should be looking for extra business. If we have mortgaged ourselves and our bodies for the future, we should at least be looking for the revenues that can make our hospitals economic and viable.

We should also recognise the sudden change in the state of our health. We are healthier and healthier all the time. For the older age group, repairs are often more the key. The move seems to be more towards treatment like the maintenance of an old car. You go in and out of a workshop within a very short period. Likewise, you would not go into a full hospital but into what some people are now calling a patients’ hotel, in which the costs would be like that of a two to three-star hotel—about £70 a night at most, or perhaps £50—because it does not need carpets or curtains. It has oxygen cylinders, and it is linked to what could be called a maintenance factory. These changes are taking place. I have spoken to friends in the health service who have indicated that possibly we have too many of the wrong sorts of beds.

What do we do about it? Certainly, we must look at the new techniques available in the world. The United Kingdom is fairly far advanced in activities that not only save lives but may also save problems. For example, the British urological society has found, in conjunction with the Egyptians and based on ancient mummy technology, the ability to create a bladder from your gut. Doctors and surgeons are being trained so that people will not need the “bag” anymore. There is remote treatment for colon cancer, whereby a blown up picture of all the pixels in your body is hung on the wall and, instead of cutting out good tissue, just bad tissue is picked out. I gather that the machines and equipment are available in the United Kingdom, but that people are unable to use them.

Not far from Hammersmith and Fulham, where I sometimes am in London, is the Chelsea and Westminster Hospital, which is good, and Queen Charlotte’s Hospital. There are problems with Charing Cross Hospital, which is an elderly building and probably needs £100 million spent on it to refurbish it. In the London area, the Ravenscourt Park Hospital, which was the ancient Royal Masonic Hospital, is one of the best hospitals for hips and knees. It has some 200 beds, but only 40 are occupied because it has a shortage of patients. I cannot work out why, when we spend all this money on hospitals and new systems, we do not have the cash flow to permit those hospitals to achieve the objectives that were laid down for them—perhaps many of them were too optimistic. Without that cash flow, we will have a crisis and without the ability to fund the patients who need treatment, we will have a major problem for patients themselves. This problem will not go away. However, if the private and public sectors were to sit together, they could possibly get rid of the PFI concept that I do not like and arrive at something which we might declare to be a really true partnership.

My Lords, I thank the noble Lord, Lord Rea, for raising this debate. I recognise the force behind his arguments, and his commitment and passion for the NHS, but I hope to demonstrate that it is possible to feel as passionate about the NHS with a diametrically opposed view. First, I must declare my interest in healthcare as chair of council at St George’s, University of London, which trains doctors and healthcare professionals. I will mention training. I am also a board member of Monitor, the NHS foundation trust regulator, which has seen the benefits of giving a degree of independence to NHS providers in terms of improving financial rigour and quality of care.

Like the noble Lord, Lord Rea, I have worked in the NHS all my life as a doctor. I know that the NHS must change: I strongly support the Government’s reform agenda. Indeed, I urge them to get on with it. The NHS would benefit from a far greater diversity and plurality of providers from within the statutory for-profit and not-for-profit independent sectors. Like other noble Lords, I believe in the founding principle that the NHS should be available free at the point of need. It should be largely a comprehensive health insurance system and an expert commissioner of health services. But I do not see why the whole of NHS care should not be independently provided if it remains largely free to those in need. If the NHS concentrated more on being an expert commissioner of healthcare and freed itself from the provider role, it might make better investment decisions in the light of evidence-based public health need. In that sense, I support the points made by the noble Lord, Lord Selsdon.

Let us face it, huge chunks of healthcare already provided by the independent sector are paid for by the public purse—for example, half of all care in residential nursing homes. Some 30 per cent of the total NHS budget pays the private sector for pharmaceutical supplies, sterile products, much-maligned information technology and so on. Of the 70 per cent of the NHS budget that is spent on pay, well over a third of it pays GPs, most of whom have always been independent contractors and not salaried employees. The NHS has been buying some operations from the private sector for donkey’s years. Mental health service commissioners buy over 60 per cent of secure care from the private sector, and contract out care for some of its most challenging learning disabled patients. The sums spent are close to £1 billion on these last two types of contract alone, so it is a bit late to be squeamish about the private sector’s contribution.

Opinion polls show that the members of the public do not mind whether they are treated in a public or private facility as long as they are treated well. The thing that recently convinced my mother, a lifelong supporter of the NHS, to have her cataract extractions in a Nottingham private hospital instead of the local NHS trust was that her NHS consultant explained exactly how the trust was organising her care at an independent clinic, paying for it and monitoring the outcome. Of course on this occasion there was no competition, but an extremely productive partnership of exactly the kind talked about by the noble Lord, Lord Selsdon.

The main arguments against independent treatment centres relate to training, sometimes quality of care, and cost. Training does have a price and increasingly I hope the NHS will want to contract training placements from the private sector, and it is time that the deaneries organised themselves in this respect. At the moment too little training is done in the independent sector, as well as too little research and development. Not only does that create artificially low costs for some independent sector treatments, but it also makes it difficult to instil in the trainee an open mind to think about the possibilities of how they work and the culture in which they work. Of course, many of these problems will not be an issue when everyone is on a level tariff, but getting to that level tariff is crucial. The price the NHS pays for private work remains an issue. While it may have been necessary to provide sweeteners to get early contracts in, I fervently hope that the currently above-tariff prices are merely transitional and not a permanent feature.

Quality of care is an issue. There is much mudslinging from both sides of the fence, but precious little data. The independent sector often has contractual requirements to provide far more detailed data on outcomes than is currently demanded of any NHS trust or individual consultant. Nevertheless, the regulatory framework is different. So far, despite the protestations of some surgeons who see their lucrative sources of income dropping dramatically if there is no waiting list and competition within the independent sector for NHS contracts, there is little hard comparative data on productivity in the new independent sector contracts. One result of private sector involvement, however, may well be better outcome data all round, which can only be to the benefit of patients. Will private sector provision lead to the closure of NHS departments, or even whole hospitals? The answer is maybe, and if commissioning is effective then perhaps it should. Hospitals that lose business will undoubtedly suffer in the new environment, but I hope Ministers will have the courage to see the policy through to what may be uncomfortable conclusions. History in this area, of course, is not encouraging. The question is whether the efficiency gains that independent treatment centres and other private providers can bring can offset the inefficiencies they may well generate in the local district general hospital. We do not know.

So far, as the noble Lord, Lord Rea, said, the contribution of the independent sector to surgical care has been too small to assess the real impact. However, I would dispute with him that the tumbling waiting lists have had nothing to do with introducing independent sector treatment. The plans for these services have had a huge impact on NHS behaviour. They have had to concentrate harder on how they contract for services. NHS managers have found it easier to negotiate cheaper fees with their own consultants for extra work, with payments well below the standard BUPA rate. This is the sort of outcome competition is supposed to produce. It does not surprise me that the British Medical Association does not like a situation where the NHS moves away from being a monopoly provider; it has served its members extremely well—better than anywhere else in Europe. I ought to admit here to being a member of the British Medical Association, but not always a well behaved one, as noble Lords can see.

The reaction of the UK private sector is telling. All four major providers have restructured their businesses. BUPA has sold nine of its hospitals because it believes they cannot adapt to the new NHS market and the effect that it is likely to have on the private one. Like other private providers, it is installing the NHS choose-and-book IT system so that patients can gain access to its beds as Patient Choice arrives. All four UK operators have now provided procedures to the NHS at tariff prices or below. This is convincing evidence that the policy is beginning to bite. All this heralds a much less comfortable time for many NHS institutions and staff. The price for this may well be disruption of established services. How bad that is and how well it is handled may well decide whether the outcome of this policy is judged to be a success or failure.

This is why I believe foundation trust policy is so vital. It allows a measure of independence in decision-making but maintains staff within an employment framework and a pension system which is extremely valuable to them. It gears up providers to be competitive and delivers a mindset to be able to challenge the independent sector at its own game. I hope the Minister will give a commitment to maintaining and developing further those freedoms that foundation trusts currently have.

I have some questions for the Minister about the plurality of providers. Do the Government have a view on how broad the notion of providers should be? Are there plans to achieve that position or will the market be left to decide? When do the Government expect to provide a true level playing field on tariffs to ensure that the resentments felt by the NHS about the new providers can be challenged on a fair basis?

My Lords, I am grateful to my noble friend Lord Rea for introducing the debate today. It comes at a very opportunetime, following a week in which there havebeen demonstrations—including a march on Parliament—by a workforce that is notably non-militant. It is clear that staff in the NHS are deeply concerned about redundancies and future job prospects. They also attribute many of the problems they face to the piecemeal privatisation, as they see it, of the NHS.

They believe that the redundancies are being caused by the requirement that health trusts have immediately to clear deficits which have accumulated over a long period. For this they blame government policy with its commitment to creeping privatisation. They point to the impact of the private finance initiative. As well as guaranteed income streams and excessive annual returns, PFI consortia are allowed to keep 70 per cent of windfall gains made from refinancing debt and 100 per cent from trading their PFI gains on the secondary market. It is alleged that, across all sectors, PFI companies will make £148 billion over the next 25 years. It is surely unacceptable that private industry should be making these profits at a time when NHS staff are facing redundancies because of trust deficits.

Then there are the independent sector treatment centres, to which my noble friend has already referred. These are stand alone private sector clinics specialising in a limited range of simple treatments. They are contracted to carry out procedures at a fixed price, which is paid whether or not the operations are actually carried out. They were supposed to provide extra capacity but they are in fact in competition with the NHS in many areas. I am informed that, on average, they cost 11 per cent more than the NHS for each of their procedures.

Attempts are also apparently being made to outsource to the private sector the commissioning function of the primary care trusts. Private companies would thus gain control over which treatments patients receive and who provides them. The Government apparently now wish to introduce the private sector into running GP practices. The Department of Health has taken control of the procurement of GP services in a number of areas. In these circumstances, it is not surprising that staff feel that their problems and difficulties are attributable to the privatisation which the Government have undertaken.

The union Unison says that it has never been opposed to reform but believes that what is happening is not in the long-term interests of the NHS or its patients. Staff who have recently undertaken training are now unable to find jobs. As has already been indicated, there have been redundancies and further redundancies are expected. As a Londoner who is also an NHS patient, I find this absolutely astonishing. The hospital where I am a regular patient always seems to me to be absolutely inundated with work. The staff are very good, but look overstretched to me. Yet I understand that there are to be redundancies.

During a recent interview, the Health Secretary said that innovations and improved technology meant that it would not be necessary for people to spend so long in hospital, so fewer beds would be needed. We have heard some reference to that this afternoon. In any event, it is said that people prefer to be cared for at home, rather than in hospital. That is fine, as long as support services are available. However, I fear that very vulnerable people, particularly the elderly, will suffer as a result of such a policy. The appropriate services are simply not there.

I recall only too well my own recent experience. I had a rather difficult operation on my knee which had not gone too well—indeed, it is still not very good, but that is another story. I had been told by the consultant that I would need to spend at least a week in hospital after the operation. To my surprise, the ward manager came to see me a couple of days after the operation and told me that I was going out the next day. I complained that I was in some pain, I could not walk and I lived alone. How was I going to manage, I asked? “Oh”, she said, “haven’t you any relatives?”. “None that lives near”, I said. She eventually said that I could have another day so that I could get in touch with my sister who lived in Wiltshire. My sister and brother-in-law came up from Wiltshire to London to collect me, take me back to Wiltshire and there arranged for me to have follow-on therapy at Melksham Community Hospital. The hospital in London simply did not have room for me; it needed the bed.

I was able to make alternative arrangements, but we have an increasing population of ageing people, many of them women living on their own. Families cannot always help. Support services are very poor in most areas. The notion that they can simply be discharged from hospital very soon after surgery into care services is likely to leave many old people in some difficulty and distress. Or else it means imposing more burdens on families, and carers already save the NHS a great deal of money.

I believe that the concerns of staff in the NHS should be given greater credence. The vision of an NHS largely provided by an assorted set of private care companies does not give a great deal of confidence. Much money has indeed been spent by the Government on the NHS, and for that the Government are obviously to be commended. But while I—and, I am sure, most people—would be happy to see this money spent on ensuring that the staff are better paid, we are less happy about it forming the basis for huge profits for PFI companies and the private sector.

Again, I thank my noble friend Lord Rea for giving me the opportunity to speak this afternoon on what I think is a growing problem.

My Lords, I, too, thank the noble Lord, Lord Rea, for his very topical subject for debate. It is topical because noble Lords will be aware that in the past two weeks, Patricia Hewitt has appointed Sir Ian Carruthers, who was until recently the acting head of the NHS, as a troubleshooterto quell public rebellion against hospital closures in50 hotspots.

It is extraordinary that at a time of unprecedented investment in the NHS, there is growing public disquiet about the extent of independent sector involvement in it. I say “extraordinary” because independent sector involvement in the NHS is not new. NHS GP, ophthalmic and pharmacy services have largely been provided by independent contractors since 1948. According to a report by the Healthcare Commission in 2004-05, more than 80 per cent of those who use mental health services in the independent sector are NHS patients, including those in low and medium secure settings. It is not new so why, then, this disquiet?

The first reason is the fear that there will be a huge impact on other parts of the NHS in a way that is unplanned. The noble Baroness, Lady Murphy, came closest to putting her finger on the real question. There is a deep and growing disquiet at the lack of transparency about the terms on which private sector involvement is taking place in the NHS, leading to a situation in which it is impossible to judge in any objective fashion the true impact on activities and costs.

ISTCs are expected to provide more than 500,000 elective procedures. Phase 2 of the ISTC provides £2.75 billion over five years for elective surgery and£1 billion for diagnostics. We do not know what the effect of that will be on the NHS. The Government’s response to the Health Select Committee’s report on ISTCs, Command 6930, is a fascinating document. In a very small, tight, condensed fashion it hits on all the key questions about what the programme is likely to do to the NHS. In response to fears raised by the committee about the capacity of phase 1 ISTCs being built in places where the capacity was not needed—a point touched on by the noble Lord, Lord Selsdon—the Government’s response was:

“Utilisation of ISTCs is high at 84 per cent and we are unable to benchmark this against NHS performance”.

Why not? That is an absolutely crucial piece of management information which any enterprise would be expected to have. It is essential to work out whether something is providing value.

The Health Select Committee also made the point that while ISTCs have increased choice at more locations—and they have provided earlier treatment—there is no information about clinical quality, so patients cannot exercise informed choice. The Healthcare Commission is reviewing the quality of care provided by ISTCs to patients and will publish its findings in March 2007. It will state whether there is evidence about the extent to which the quality of clinical care in ISTCs meets recognised professional and regulatory standards. Would it not have been wiser to have that information before going ahead with another phase of ISTC development? Would that not be a sensible way in which to ensure that patients received treatment that was not only timely but safe? I think that we are all in agreement that the ISTC programme is not at the moment a damaging thing to its NHS competitors, but there is no way of evaluating whether we are comparing like things.

In the Health Select Committee report, in paragraph 103 on page 37, the committee addresses the issue of value for money and the NHS equivalent costs of the ISTC programme. The noble Baroness, Lady Turner, mentioned this figure and said that ISTC procedures were deemed to be 11.2 per cent more costly. They are—and they are considerably lower than the cost of spot-purchasing individual procedures privately. But the Government’s defence of the whole ISTC programme and buying in this extra capacity was that it was based on an analysis of projected need conducted by strategic health authorities.

That begs two questions. First, how good was that analysis? As the noble Lord, Lord Selsdon, said, a great deal of money is put into NHS facilities, and there appears to be very little co-ordination between the provision of the service and the demand for it. The second question that arises from the Health Select Committee report is about the block contract arrangements. The noble Lord, Lord Rea, was right in saying that the “take or pay” nature of those contracts led to a distortion of provision. The Government have defended that form of contract, saying that they need to balance risk and cost for these new providers. That is extraordinarily generous of them.

I should declare that in my working life I advise not-for-profit companies that seek to provide services to the NHS—principally, primary care services. We routinely, along with the lawyers who advise us, tell them to watch in all tender and contract negotiations for risk being loaded on to them as providers. That the NHS should choose in this instance to carry the risk itself is fairly unusual. How will that risk-loading on contracts be dealt with in the next phase of contracts? To what extent are the transactional costs for contracts in the private sector factored into the evaluation of the comparison with NHS equivalents?

In the time left to me I shall concentrate on the potential contracting out of PCT commissioning. In June 2006 the Government advertised for firms to, in effect, take on the role of commissioning servicesin the NHS. It was a very strange decision. There had been no public debate about it. It was not a manifesto commitment. The advert was actually withdrawn. It is not possible to determine exactly what the Government’s intentions were, but their decision implied that they felt a lot of services run by PCTs, including commissioning, were inadequate and would be more effectively provided by the private sector, thereby putting it potentially in control of three-quarters of the NHS budget—that is, about£65 million.

Our view on these Benches is that there are areas in the country where the quality of commissioning is poor. However, the case for bringing in the private sector to take over that commissioning function has not been made, because it is not clear on what basis the private sector would do that. One is left to assume that services would be commissioned principally on the basis of cost, not of quality. That leads us to suggest that there is no evidence that the development of private commissioning would be preferable to improving commissioning skills and capacity within the NHS; for example, by disseminating good practice.

Much has been said already on the subject of PFI. I support the noble Lord, Lord Rea, in his question to the Minister about how the Government can justify the payment of £53 billion for private finance initiative hospitals that are worth only £8 billion. In September 2006, in a speech to the IPPR, Patricia Hewitt stated that there was no limit to the role of the independent sector in the NHS. We would add to that the words, “as providers competing on fair and equal terms, judged by the same quality standards and required to provide the same management information, and working with the same obligation to work in partnership with those parts of the NHS that will never be commercially attractive but will always be needed”.

As in other public sector services such as education, what is happening is yet another round of rushed structural reforms in pursuit of very short-term gains. We believe that the NHS working with the independent sector has a bright future, provided that there is coherence in Government policy, and that what we are buying for the NHS is increased resources and not increased competition for the future, at a time, as the noble Lord, Lord Selsdon, has said, when services and demand will be different.

My Lords, as I suspected, the innocent-looking Question tabled by the noble Lord, Lord Rea, turned out not to be so innocent. He has done us a service by raising a series of issues that lie at the very centre of the Government’s health policy, and I listened with care and a good deal of agreement to all that he had to say.

My personal starting point in all this is that there is nothing inherently peculiar about the private sector being involved in NHS delivery. If we think about it—the noble Baroness, Lady Murphy, drew our attention to this—private enterprise has been involved in the NHS in all sorts of ways from the inception of the service. You go to see your GP, who is an independent practitioner; he gives you a prescription for a medicine dispensed by your local chemist, who himself runs a private business. The medicine is delivered to the pharmacy by a wholesaler and manufactured by a pharmaceutical company, both of which are private enterprises. These things are part of normal, everyday life for the NHS; we do not think twice about them, and, indeed, the sums are huge. So as regards the basic principle of private sector involvement in the delivery of NHS care, I do not think that we should allow ourselves to get too hung up. When I first read the noble Lord’s Question I made the assumption, which turned out to be correct, that he was not really concerned with any of the things that I have just mentioned but with other, more topical issues. I guessed that PFI would be one.

The major advantage of PFI cannot really be costed in money. It is that by arranging matters in such a way that the private sector builds, operates and maintains a hospital throughout that hospital’s predicted life, NHS patients receive the benefit of that facility much sooner than they otherwise would have under the public finance route. Furthermore, the maintenance of the building is guaranteed by the contractor over the entire period and the business risk transferred away from the taxpayer. That much of PFI is generally agreed to be positive. However, the key question, on which the noble Lord put his finger, is not whether the public have received a benefit from the PFI deal, but whether they have received good value for money.

In May of this year the Public Accounts Committee of another place produced the results of its report into the refinancing deal at the Norfolk and Norwich Hospital, one of the first major PFI deals to be signed by the Government in 1998. Two years later Octagon refinanced the project, and in so doing increased the rate of return to investors to more than three times that which it predicted in its original bid. The PAC was scathing about this deal, referring to,

“the unacceptable face of capitalism”,

and stating:

“It is hard to escape the conclusion that the staff managing the project were not up to the rough and tumble of negotiating refinancing proposals with the private sector”.

Those words came to mind last week when the Government published a Written Answer, to which a number of noble Lords referred, giving the capital value of each PFI hospital alongside the unitary payments for that hospital during the life of the PFI contract. The Answer makes astonishing reading. PFI hospitals with an aggregate capital value of £8 billion will cost the taxpayer no less than £53 billion over the life of the contracts, a ratio of about six and an half to one. That large difference, of course, includes within it both the cost of money and the cost of so-called “hard services” such as buildings maintenance. But the revealing aspect relates to those hospitals where the PFI contract also covers so-called “soft services”—cleaning and catering. Cleverer heads than mine have analysed the figures and worked out that on average each of those hospitals is paying no less than £39,000 per day, every day, during the life of the contract just for cleaning and catering. The mark-up has to be enormous.

But the irony of PFI is that, after promising the biggest ever hospital building programme in the history of the NHS, the Government now say that they do not want care to be provided in hospitals after all. As we all know, hospitals around the country are suffering cutbacks and closures, and in the midst of all that more than 80 NHS organisations are locked into very long-term contracts for the building of large hospitals that we have no idea whether the NHS will actually need. It is the inflexibility of these contracts which has turned them into a financial straitjacket. In the new world of intense competition between providers, hospitals do not want to be locked into commitments lasting into the 2030s; it is a handicap which they simply cannot afford if they are to remain competitive: Queen Elizabeth Hospital, Woolwich being the obvious example.

Many PFI contracts were drawn up at a time when service level agreements offered stability of income. Now, under payment by results, the goalposts have moved, and those hospitals find not only that their income is more volatile but that the level of the tariff is totally unrealistic in relation to their running costs. I seriously question whether the right hand of the Department of Health realised what the left hand was doing when, first, payment by results, and then care in the community became part of mainstream health policy.

Then there are the independent sector treatment centres. The cost-effectiveness and value for money of ISTCs has been difficult for mere mortals to establish, because the Department of Health has refused to release a lot of relevant information on the grounds of business confidentiality. The evidence that exists in the public domain shows that the NHS and the taxpayer are often paying a premium for independent sector involvement; on average 9 per cent and perhaps 11 per cent more than the NHS equivalent costs. There are reasons for that premium, which no doubt the Minister will set out. However, the real concern here is that, under the terms of their contracts, ISTCs are paid irrespective of whether they have completed the work that they have contracted to do. In some instances, they have been paid in full when only 73 per cent of the contracted procedures have been carried out. I suggest to the Minister that that is a high price to pay for the additional capacity afforded to the NHS by these centres. We all want that capacity, but not in a form that could destabilise the local NHS.

That risk was highlighted by the House of Commons Health Select Committee in July. The ISTC programme will eventually provide about half a million procedures a year, at a cost of over £5 billion. Unless these contracts are managed extremely carefully, the viability of a number of NHS providers in certain areas of the country is very likely to be affected adversely, and not necessarily through any fault of their own.

The Secretary of State said recently:

“If independent providers can help the NHS provide even better care and value for patients, we should use them”.

I fully agree with that. Where I disagree with the Government is on the way in which independent providers are currently being used. Patient referrals are being channelled towards ISTCs irrespective of the wishes of patients, thanks to so-called referral management centres. For as long as that continues, the idea that ISTCs are serving to enhance patient choice looks like something of a fiction.

The virtue of ISTCs should not just be to enhance capacity, but to enhance choice. That is why the Government need not set any artificial limits on the NHS’s use of the independent sector. The only limit should be that exercised by patients making the choice of where they want to be treated. Some people are fearful that having a greater plurality of providers will fragment patient care and reinforce boundaries between institutions. We need to take account of that worry, but perhaps not overplay it. The Connecting for Health programme, when it comes on stream, will serve to dissolve many of the boundaries that might otherwise affect patient care. We need to have certainty over the quality of treatment delivered by ISTCs. The BMJ in recent months has contained some worrying anecdotes on that score, including inadequate training of surgeons, poor supervision and poor clinical governance procedures, so it is reassuring that the Healthcare Commission is currently examining quality standards in ISTCs. There needs to be a level playing field across the piece.

One issue that was not covered by the noble Lord, Lord Rea, but was raised by the noble Baroness, Lady Barker, is private sector commissioning. I am running out of time, but I want to sound a note of warning. I am worried that if that really is the way that we are going, it could represent a very serious wrong turning, not least in the context of the future development of effective practice-based commissioning. One has to question whether the ethos and values of a private sector organisation will make it fit for purpose as a commissioner.

PCTs have public service values and they are accountable. Private commissioners are differently motivated and they are not in the same sense accountable to the public. The way in which private companies operate is too often hidden by considerations of commercial confidentiality, and it is questionable whether they will be susceptible to judicial review. If the Government want to go down the road of private sector commissioning, we need, at the very least, an open debate about it and about what it will mean for the NHS and for patients.

My Lords, I am grateful to my noble friend for initiating this short but passionate debate. It raises many questions that we must discuss, and I hope that we will have many more opportunities to do so.

My noble friend was absolutely correct, and I start by stating categorically that we will never compromise on the fundamental principle of a health service funded through general taxation, available to each of us equally and free at the point of use, with care based on need and not on ability to pay. Those fundamental principles were the starting point for the NHS Plan, which we set out in 2000, and they have not changed. We will never compromise those values. Indeed, not only are the changes and reforms that we are making consistent with our traditional values, they are essential if we are to protect those values for another generation.

Over the past five years, we have seen far-reaching improvements in the health service. They have been delivered thanks both to the dedication and commitment of NHS staff and to the record levels of investment that the NHS has received under this Government—from £33 billion in 1997 to £69 billion this year and £90 billion by 2008. All that money has been, and will be, spent on providing the healthcare that people want, whether provided directly by the NHS, by the independent and voluntary sector or by private companies, in hospitals, in specialist centres, in the community or in their homes.

We are now six years into our 10-year programme of health reform, as set out in the NHS Plan, in which we also clearly set out our strategy and path for progress. We are not talking about a rushed set of reforms to produce short-term gain. Indeed, there are four key elements of health reform: more choice and a stronger voice for patients; money following the patient; a regulatory system that will guarantee quality; and a range of providers so that patients and commissioners can get the right services in the right place at the right time.

It was one of the core principles of the NHS Plan, explicitly endorsed by many of the organisations which marched on Wednesday, that we would strengthen partnerships—as stressed by many noble Lords—with patients, their carers and families, NHS staff, and public sector, voluntary and private providers in supplying the highest quality, patient-centred services.

The involvement of the independent sector is not a departure from NHS values—far from it. I emphasise three points. First, the NHS will always remain a provider because of the quality and commitment of its staff, in and outside hospitals. Secondly, as the noble Earl, Lord Howe, clearly stated, the NHS has always been a mixed economy of care. State-owned hospitals have worked happily with GPs—the majority of them private businesses dependent on the profits from their practices—since the founding of the NHS; and the private sector has been widely used to meet particular pressures—at a very high cost, as pointed out by the noble Baroness, Lady Barker. That is not new, and it has not happened only under this Government’s watch. When 40 per cent of secure mental health beds and nearly half of NHS abortions are provided in the private or not-for-profit sector, we should not try to set arbitrary targets or limits on one provider or another.

Thirdly, where a particular service is not meeting the needs of local people, commissioners will be free to find the best organisation or partnership to provide the services that are needed. I stress at this point that it is not private sector commissioning—just advice and support to PCTs. PCTs remain responsible for all commissioning decisions. I know that that concern has been raised by many noble Lords.

I now turn to the figures. Although information on the proportion of NHS finances currently spent on the private sector is not collected centrally, the department does collect fairly comprehensive information on the proportion of total NHS spend on non-NHS provision. However, as well as including the spend on private sector provision of healthcare services, this includes substantial expenditure on local authority and not-for-profit provision of healthcare services, as well as expenditure on public/private partnership capital investment schemes such as PFI and NHS LIFT. In 2004-05, the last year for which full figures are available, the NHS spent a total of £4.1 billion, 5.9 per cent of total NHS spend, on non-NHS provision. That figure excludes long-standing arrangements relating to the general medical, pharmaceutical and optical services and the purchasing of pharmaceutical products and medical devices from the private sector. It also, of course, excludes the cost of GPs, the majority of whom are, and have always been, private businesses dependent on the profits from their practices.

As for future spend on the private sector, I draw attention to the fact that, where clinically appropriate, patients can choose in which hospital they would like to be treated. A great many will choose to go to their local NHS hospital; others will not. It would be injudicious to set an arbitrary limit on the proportion of NHS spend in the private sector in the future. Although 2004-05 is the last year for which I can provide a fairly definitive figure, at the end of 2005-06 expenditure on the first wave of independent sector treatment centres had reached £136 million; expenditure on PFI schemes for that year was£468 million; and expenditure on NHS LIFT, the public/private partnership to improve our primary healthcare infrastructure, was £100 million.

Understandably, today there has been much interest in ISTCs. The total investment in wave 1 of that programme will be approximately £1.6 billion and in phase 2 we expect to invest £3 billion on elective services and a further £1 billion on diagnostics services. That expenditure is clearly to be made over a number of years.

Concern has been expressed about possible destabilisation of existing service providers. In phase 2 of the procurement, there is a robust process to ensure that there is local support and a capacity need for each ISTC. That includes the SHA demonstrating how the ISTC will be integrated within the local health economy and how any impact on the activity levels and capacity of existing providers will be managed.

We recognise the importance of the provision of training for NHS staff in ISTCs. Training pilots are now taking place in wave 1; for example, there is training for doctors and nurses in Brighton, York and Burton, as well as many other forms of training. In the second phase of ISTCs being procured at the moment, all schemes will have the capacity to offer clinical training experience. It will be a matter for educationists locally to take this up and, if they do so, there will be no additional cost. Like the noble Baroness, Lady Murphy, I hope that the deans will ensure that that becomes practice. Do ISTCs cherry-pick? No. They were established precisely to offer dedicated facilities for specific types of planned surgery. Similarly, units have been established by NHS hospitals, and the number of places in NHS treatment centres far exceeds those in ISTCs.

The noble Baronesses, Lady Turner and Lady Barker, spoke of the premium to ISTC providers. Premiums recognise that ISTCs face costs that are not borne by the NHS, such as staff recruitment, the cost of financing new buildings and many other things. We do not expect to pay the same premium in the next phase of procurement. That is important.

Noble Lords have rightly stated that the Select Committee in the other place was told that the department is still negotiating contracts for the next phase of ISTCs and, therefore, the committee was unable to receive all the information that it required. That is absolutely right, because to have provided all the figures could have adversely affected the department’s ability to achieve best value for money for taxpayers in these negotiations. However, a point often missed is that the Select Committee was offered—it took up the offer—a private meeting with Ken Anderson, director-general of the department’s commercial directorate, to discuss these matters. The department and the NHS are committed to evaluating the impact of the reform programme so that the lessons of the current reforms can be used for policy development in future.

The noble Earl, Lord Howe, made a point about referral management centres which, it is alleged, are being used by PCTs to intercept GP referrals and divert them to private providers. The most recent guidance issued by the department to the NHS made clear that referral management centres must not be imposed on GP practices. They must abide by clear protocols that provide tangible clinical benefits to patients and should provide feedback to practices on referrals, thus enabling GPs to review the appropriateness of their referrals.

The noble Lord, Lord Rea, asked whether inspections of ISTCs are as rigorous as those of NHS trusts. The quality of treatment must be paramount, and ISTCs are subject to inspection and audit by the Healthcare Commission, as is the NHS. In addition, providers of ISTCs are subject to a rigorous contractual performance regime to ensure that they provide the high level quality of care that we expect for NHS patients. Like the noble Baroness, Lady Murphy, I believe it is clear that ISTCs are having an effect on practice in the NHS and the private sector.

Many noble Lords raised questions about the private finance initiative. The way in which the Opposition and many others have chosen to use government figures is wrong and grossly misleading. The relevant figures are £8 billion for the capital cost of PFI hospitals open or under construction and£53 billion for subsequent annual payments to the private sector partners over the next 30 years. The annual payments made by NHS trusts to their private sector partners cover financing charges, building maintenance and, in most cases, all the non-clinical support services such as cleaning, laundry, catering, portering and security, which can account for between 40 per cent and 50 per cent of the annual payments. Pure capital cost accounts for as little as one-fifth of the overall total paid by the trust. The £53 billion figure also includes inflation compounded over30 years, whereas the £8 billion figure for capital costs only includes inflation for the build period, which is usually two or three years. Therefore, the figures are simply not comparable.

At the end of a typical PFI contract period, the NHS trust always exercises a first option on the property in the interests of the NHS. At that point, the private sector partner has recovered all its costs and leases automatically fall away at the same time, leaving the trust free to run the hospital itself, retender the PFI contract or realise the investment potential of the site. I will write to the noble Lord with a breakdown of costs and interest rates and place a copy in the Library for the information of all noble Lords.

For users of the National Health Service to have a real choice and a real say in their healthcare, there must be real diversity of provision. That means that commissioners of services must have the freedom to make decisions and exercise options for action. It also means regulated access to the private and voluntary sectors, but it does not mean privatisation. Most noble Lords in the Chamber agree on that point. We have always procured services from the private sector, and we always will. The difference is that we are now doing it rationally within clear regulatory and financial frameworks for the benefit of all of us who use the NHS. Whether services are provided by NHS hospitals, privately owned ISTCs, not-for-profit social enterprises or voluntary bodies, they will be commissioned and paid for by a publicly funded NHS. If independent providers can help the NHS provide even better care and value for patients, we should use them. If they cannot, we should not. That is the bottom line.

I am pleased to report to the noble Lord, Lord Selsdon, that we are on target to reach 18 weeks by 2008 and the target will cover the whole patient pathway from GP referral to main treatment by a consultant. It was designed in order to get rid of the so-called “hidden waits” that he so graphically demonstrated.

My noble friend Lady Turner mentioned the primary care sector and innovation. We have an obligation to patients, who deserve the best quality services. It is crucial in under-doctored areas or where existing practices fail to meet the needs of their population that PCTs commission new services from different providers, whether existing high-quality practices or new providers. That is why we are taking that action.

The noble Baroness, Lady Murphy, asked: when will we provide a level playing field of tariffs? We will do that once centrally procured contracts have ended. All providers will then be required to operate at tariff. How broad is our notion of providers? By the end of 2008, patients will be able to choose to go to any provider that can meet the NHS quality and tariff.

The NHS does not have a monopoly on values, and the private sector certainly does not have a monopoly on efficiency. What we are looking and working for is a partnership, delivering quality care that brings together values, best value and efficiency for the benefit of all of us who use and pay for the NHS.

House adjourned at nine minutes before four o’clock.