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.
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.
However, 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.
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