Sam Yardley, a partner in the asset finance group at
Watson, Farley & Williams and FLA NHS Forum member, and Louise
Hamilton, head of NHS sales and marketing at Singers Healthcare
Finance and chairwoman of the FLA NHS Forum, consider how the
proposed regime change embodied in the current Health and Community
Care Bill will affect financing.
Go deeper with GlobalData
Since the establishment of the UK’s National Health Service
(NHS) in the 1940s, the stated aim of successive governments has
been to ensure health care is free to patients.
Despite some grumblings about the
back door privatisation of the NHS, this still seems to be the
case, although the bodies through which the NHS delivers health
care, the method of distributing funds, and the way the relevant
health care bodies are monitored, continue to change.
The common consensus is that
something has to be done about NHS funding, though, if the
headlines in recent press articles are to be believed, the method
by which the current changes are to be achieved is less than
palatable to many groups within the medical profession. This is
despite the unprecedented ‘pause’ for reconsideration of the Health
and Community Care Bill, which was imposed on proceedings earlier
this year.
The stated aim is for the NHS to
find £20bn (€24bn) of savings by 2014-15, although anecdotal
evidence suggests the cost of the current reforms may make a large
dent in any savings already achieved.
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By GlobalDataHowever, the constant requirement
for new equipment and facilities to keep pace not only with demand,
but also advances in medical treatment, balanced against the
continued constraints on capital expenditure, must, nonetheless,
continue to provide an opportunity for finance in this market.
These opportunities are not only
for public entities but also for private bodies which wish to
increase their involvement in this sector.
Until the current Bill, which is
still plodding its way through the House of Lords, becomes law,
health care funds will continue to be distributed via regional
Strategic Health Authorities (SHAs) and Primary Care Trusts (PCTs)
in order to ensure the provision and commissioning of a range of
public health care services in each area, with patients, on the
whole, being directed for treatment locally.
For the past two decades, public
hospitals have typically been established as NHS Trusts (although,
more recently, we have seen the emergence of NHS Foundation Trusts)
which have a statutory function to provide a wide range of services
at each site, although constraints on the public purse mean that it
can no longer be assumed that every hospital will be a ‘one-stop
shop’ providing all services for all patients.
The current Bill seeks to amend,
once again, the internal market through which public funds
earmarked for health care are distributed, while at the same time
allowing for increased autonomy of the relevant bodies and
competition with the private sector.
Following a recent suggested
amendment to the Bill, it remains the over-arching obligation of
the Secretary of State for Health to promote a comprehensive health
service. However, the commissioning and provision of relevant
services will, on the whole, no longer be the responsibility of the
Secretary of State, but will be delegated directly to relevant
organisations.
Around 250 GP Commissioning Groups
(which will be statutory corporate bodies established by the NHS
Commissioning Board [the ‘National Board’ in the diagram
above] made up of local GP practices) will be at the forefront
of budget distribution (replacing SHAs and PCTs).
They will have significant
responsibility for determining how funds are to be spent and for
what and on whom, and with the responsibility to commission a range
of services and facilities as each GP Commissioning Group considers
appropriate.
The National Board will be a
non-departmental government body, funded by the Secretary of State,
with a responsibility to hold the GP Commissioning Groups to
account for the services they commission and their financial
performance.
One result of the change is that it
may no longer be the case that patients will be directed to attend
local hospitals, as GP Commissioning Groups will have a
responsibility, under the ‘Choose and Book’ system, to ensure that
patients have a choice of treatments and providers, and so patients
are likely (in theory at least) to be able to choose among
hospitals with the relevant expertise.
GP practices or groups of GPs may
not only act as members of GP Commissioning Groups, but could also
find opportunities to attract funds by tendering for contracts for
the provision of certain specialised services, over and above their
usual GP services, in their area (although there is obviously a
potential competition issue here).
If a GP entity wishes to attract
financing from an external source, it will be necessary for the
funder to establish precisely in what capacity the GP entity is
contracting, and also the duration of any contract which the GP
entity has successfully entered into. Funders will not wish to
finance transactions for equipment amortising over seven to ten
years for a GP entity which has won a contract of only three to
four years’ duration.
Key finance
opportunity
The key finance opportunity for
financiers remains the NHS Foundation Trusts. The intention is that
all NHS Trusts will be transformed into NHS Foundation Trusts by
2014. However, this may not be achievable given the financial
status of certain NHS Trusts which may require government bailouts
in order to achieve NHS Foundation Trust status.
For those that do not make the
grade, there is now the possibility that they can be transformed
into an NHS Trust with a franchise status, similar to the
arrangement that has just started at Hinchingbrooke Hospital in
Cambridgeshire, which is now administered by Circle, but,
apparently, with the assets and liabilities of the Trust still
remaining in public ownership.
If this arrangement is successful,
it may well be a blueprint for other failing NHS Trusts.This scheme
will doubtless be carefully scrutinised.
A large NHS Foundation Trust may
currently provide as many as 1,000 services to its patients. Some
of these services will be profitable, whereas others will be
loss-
making.
Rather than providing a full range
of services, successful NHS Foundation Trusts may transform
themselves into hubs of excellence in their particular area,
concentrating on certain services and jettisoning others.
This may be more easily achieved in
large metropolitan areas where the public is likely to have access
to a number of hospitals and other facilities, so ensuring that the
GP Commissioning Group in that area has the opportunity to offer
its patients a genuine choice.
Of more concern is what will happen
in less prosperous or more remote areas, where patients will not,
in reality, be able to pick and choose, whatever the legislation
may say to the contrary.
The failure regime for NHS
Foundation Trusts, set out in the Bill, continues to cause concern
for financiers (and has been discussed previously in this
publication).
The intention is that Monitor (the
independent regulator of NHS Foundation Trusts) will supervise the
operation of each NHS Foundation Trust to ensure that financial
difficulties don’t arise. If, however, they do, a special
administration procedure may be gone through, with dissolution
being very much a final option once liabilities have been
transferred elsewhere.
It remains to be seen whether NHS
Foundation Trusts will now, in fact, be deemed as ‘too big to
fail’, with the result that they must be rescued at any cost. In
any event, no funder will wish to be seen as the party removing
critical equipment, even if it is from a failing hospital.
As with previous NHS legislation,
the Bill points the way for a whole raft of secondary legislation
and regulation. Since much of the secondary legislation required by
existing primary health legislation has yet to be enacted, it may
be that it will be some time before all the necessary rules and
regulations will be in place. Indeed, we may well have new primary
legislation before this happens.
Technical
amendments
Given the current publicity
surrounding the Bill, it remains to be seen whether it is enacted
in its current form or not. Despite the public reservations of many
bodies since the Bill entered the House of Lords, the amendments
that have been put forward are largely technical amendments, rather
than substantive changes to the proposed, revised structure.
The Bill may, however, yet be
stopped in its tracks. Despite this, there continues to be a need
for investment in the NHS and there must be opportunities for
funders.
However, it’s difficult to see how
any finance company can continue to have a real appetite in this
market until it knows precisely to whom it is required to provide
finance and for how long, what format the relevant failure regime
will take, and, most critically, whether hospitals really will
reconfigure and/or be allowed to fail.
Is the Bill, in fact, just the
latest case of the same pieces being moved around the chess board
for yet another reform which, in reality, changes little?
At this point it is too early to tell, but those funders who
wish to continue to operate in the health care sector, must
continue to wait with bated breath to see what the future may
hold.
See also: How
the NHS looked to leasing in 2011
