Organisational Cultures and the New NHS The role of the PFI in the NHS

This chapter aims to analyse the United Kingdom's (UK's) National Health Service (NHS), revealing its origins and the key aspects of organizational culture in both the public and private sectors.

The PFI in the UK is now one of the major ways in which public sector services have been created in the UK (Broadbent, et al., 2002). However, it has been under public scrutiny regarding its operation in the National Health Service (NHS).

PFI calls upon the private sector to supply asset-based services to the public sector over a long period (up to 60 years) in exchange for monthly lease payments (Broadbent, et al., 2002). PFI was officially created in 1992 under the Conservative Government but was furthered by the Labour Government when it came into power in 1997.

The Labour Government has expanded the PFI in general into areas of the public sector that have historically been closed to private sector money for use in public sector services.

One of these areas, which previously had a significant lack of development, was in the health services industry. Before 1997, despite many efforts to develop PFI in the health sector, nothing was approved or implemented.

As soon as the Labour Party was sworn into office, it approved 14 proposals and started an additional 17 proposals (Broadbent, et al., 2002). There are plans for another 29 over the next few years involving the introduction of approximately £7 billion of private sector money into the public sector.

The creation of PFI, in the NHS, has been criticized as being too expensive compared to the costs of similar services supplied by the public sector and as detrimental to the quality of the services provided. For example, one of the organisational changes that have been associated with the implementation of PFI is a reduction in bed numbers.

However, research reveals that this judgement cannot be supported without a more thorough evaluation of PFI and of all public private partnerships (Broadbent, et al., 2002).

The IPPR (2001) says that the "evidence on value for money is variable across sectors" but "seems to be offering significant gains in roads and prisons but not in hospitals and schools" (Broadbent, et al., 2002, IPPR (2001) p.4).

However, the IPPR (2001 p. 90) states, "we will not know the actual outcomes for many years" and "settling the issue once and for all" is difficult at this point. The IPPR concludes that a "level playing field" is needed that has a " transparent set of public finance rules that do not set up artificial barriers or incentives to benefit one type of provision over another" (IPPR (2001) p. 95).

The Development of PFI in the NHS.

Basically, the PFI enables private sector involvement in the public sector for what is known as "long-term asset-based services." In many ways, the PFI is a small part of the broader New Public Management (NPM) (Broadbent, et al., 2002, Hood, 1991, 1995) agenda of efforts to expand the efficiency of the public sector through the introduction of organisational change and expertise provided by the private sector.

Prior to the creation of PFI in the health services industry, the main focus of NPM concentrated on controlling current expenditure in the public sector rather than infrastructure developments or finding new approaches to fund these developments (Broadbent, et al., 2002).

Lack of capital expenditure does not present the immediate political and social impacts that result from failing to meet revenue commitments. However, the ultimate effect of under-investment in capital stock is bound to increase over the years. Therefore, the accumulating effects have been an issue for the estate of the NHS for many years.

This pressure drew attention to the need for infrastructure investment and the need to keep public expenditure under control. These factors, combined with an ideological confidence in the efficiency of the private sector in the delivery of public services, led the Conservative Government to implement PFI in 1992.

Several years later, the New Labour Government furthered PFI initiatives, making several changes to the policies. This government supported PFI for many reasons. "First, the political imperative for partnership between the public and private sectors; second, that the quality of the public services can be improved by the private sector; and finally the possibility of investment in public services and infrastructure whilst maintaining a tight fiscal stance (Broadbent, et al., 2002)."

Since its initial implementation of new policies, the New Labour Government's justifications of PFI have become clearer to the public. However, many critics doubt the ability of PFI to yield value for money (vfm) and benefit the public..

However, this system was developed to "create the possibility that government funding restrictions would not stop possible profitable schemes in the nationalised industries (Broadbent, et al., 2002)."
For years, the Ryrie Rules were seen as relevant to the public sector as a whole. However, critics said that they were too restrictive and that the Treasury was concerned that schemes might be undertaken which would be too expensive. The Ryrie Rules were abandoned in 1992 with the creation of the PFI.

PFI was initiated in 1992 by this statement by the Chancellor (Norman Lamont) (Broadbent, et al., 2002):

self-financing projects undertaken by the private sector would no longer need to be compared with the theoretical public sector alternatives; the Government would actively encourage the private sector to take the lead in joint ventures with the public sector; the public sector would have greater opportunity to use leasing where it involved significant transfer of risk to the private sector and offered good value for money (Private Finance Panel (1995) para. 2.4, p.7)."

The Development of PFI in Healthcare

As far as the NHS is concerned, the controversy over PFI is more intense than other public sectors as the attachments that the general public have to the NHS are significant (Broadbent, et al., 2002). The general public feared that the involvement of the private sector in health care services might lead to privatisation.

Therefore, PFI in healthcare was more difficult to develop, despite the government's attempts to assure the public that it was an ideal method of procurement. The government had to clear several hurdles in order to implement PFI into the NHS.

Many investors feared that the legal status of the NHS Trusts might not protect investors in the event of financial failure, leading to intense suspicion of the PFI. As a result, the government had to pass two new acts to make sure that the banks would lend; "thus, the NHS Residual Liabilities Act was passed by the Conservative Government in 1996 and the NHS (Private Finance) Act 1997 followed. The latter Act, although conceived by the Conservatives, was passed virtually unchanged by the Labour Government shortly after they reached office, indicating the level of their commitment to PFI (Broadbent, et al., 2002)."

Today, there are 63 large PFI projects in health in England and Wales totalling about £7.510 billion (Broadbent, et al., 2002). The earliest fifteen, of these PFI projects, were allowed to proceed in July and September 1997 and are just starting to open.

In order to implement these projects, some organisational changes had to take place. For one, the Capital Prioritisation Advisory Group (CPAG) was assigned as the vehicle for approving PFI developments.

While these projects were being developed, only six publicly funded hospitals were approved (Broadbent, et al., 2002). Although the Comprehensive Spending Review approved more capital for public procurement in 1998, PFI investment was targeted to realise £310, £610, £740 and £690 million in each of the respective years from 1998 and 1999 to 2001 and 2002.

PFI was widely institutionalised through legislation and procedure but this did not ensure a widespread acceptance of the PFI in the health services industry. The public continued to pressure the government with its concerns regarding PFI in the NHS.

These concerns prompted the New Labour Party to "promise that 'clinical services' were to be outside the responsibility of PFI (Broadbent, et al., 2002, Commons Hansard, 14th July 1997, column 155)." Still, there is a grey area in defining 'clinical services'.

For example, according to the IPPR, the NHS already purchases elective surgery for publicly funded patients from the private sector (Broadbent, et al., 2002, IPPR, 2001, p.142). The IPPR recommends that the "broad categorisation of core and ancillary services should not be used to determine the boundary between private and public provision (IPPR 2001, p.127)."

The Creation of the NHS and the Enactment of UK Health Policy

In the UK, the fundamental principles behind the creation of the NHS have remained unchanged for the most part. However, since its creation, in 1948, the organisation, management and manner of service have undergone many changes. Many of these changes are not seen as ones that aimed to promote "health" as a 'social good', and thus enabling individuals to function within society. Instead, many of these changes appear to have been made for but for economic reasons (Warne et al., 2002).

When market approaches were introduced in the 1990s, the Private…