Austerity Funding and hospitals in deficit: Is PFI termination the answer?

There are few attempts to debate critically the construction of austerity or provide alternative accounts of it (Bracci et al., 2015). This paper adds to the small body of literature by firstly critically examining the funding... [ view full abstract ]

There are few attempts to debate critically the construction of austerity or provide alternative accounts of it (Bracci et al., 2015). This paper adds to the small body of literature by firstly critically examining the funding of the National Health Service (NHS) and offering a counter account to the political rhetoric from government Ministers that takes the forms of: emphasising the increasing pressures placed on services by an ageing population and ever increasing expectations from the public about the accessibility and quality of services; highlighting the considerable absolute size of the NHS budget and the scale of planned increases; and depicting the financial challenges faced by individual hospitals as the result of weak management, solvable by technical efficiency gains. We present an alternative perspective that the NHS is fundamentally under-funded, that deficits are the consequence of government policies that have reduced the payments to health care providers for services delivered, and that deficits so created cannot be reduced by efficiency gains.

Secondly, the paper critically examines whether, as has been suggested by a few senior NHS managers and politicians, deficits can be reduced by early termination of long term Private Finance Initiative (PFI) contracts - a form of public-private partnership - now seen as unaffordable. This examination is timely given the recently announced opposition Labour party policy that, should Labour come to power, all PFI contracts would be reviewed and, if necessary, contracts and staff would be taken back in-house to the public sector.

Our first set of research questions address the adequacy of funding. Our research method is to examine public domain statistical information. Our second set of questions focus on contract terminations: what are the nature and size of early termination costs? Is there adequate information in the public domain to evaluate a termination decision? This paper extends the very small evidence base on PFI contract termination by identifying eight new potential termination cases, presenting the technical details and estimating the expected financial costs. Our research method is an analysis of the relevant financial statements and other public domain information, for example, as provided by the National Audit Office.

Following Bracci et al, (2015), we argue that accounting in this example of austerity is too complex to be pigeonholed as simply balancing the books. The funding of modern standards of healthcare is challenging, but public accountability is undermined when political rhetoric disguises actual expenditure and financial reporting lacks transparency. Our findings highlight the legal restrictions and financial realities of early PFI termination but they also provide evidence of an alternate story about healthcare funding and the usefulness of accounting information. We show that reducing hospital deficits by early PFI contract termination requires significant funding that cannot be provided by individual hospitals, but would need to form part of a central government funded strategic response to the sustainable funding of the NHS .