Could it happen here? P3 hospital costs leading to meltdown of health care in the UK

If you wanted to see the future of Ontario’s health care, there used to be a time when you could simply fly to Tony Blair’s Britain and have a look.

Blair couldn’t privatize fast enough, creating more than 200 PFI projects – private finance initiatives – to replace aging infrastructure.

It really was the ‘no money down’ miracle. Hospitals, schools and roads were all built using private money. These facilities would be run by the private consortia for periods typically between 25-30 years, although some for as long as 60 years.

Typically no money down usually translates into whopping high borrowing costs, costs that will have to be paid back some day.

Now the PFI party is over in Britain, the country is experiencing one helluva hangover.

Ontario has initiated more than 30 hospital projects under similar schemes, the most notorious being the William Osler Health System in Brampton. The Osler public-private partnership (P3) has been well documented as a costly blunder. The Ontario Auditor General highlighted almost $400 million in higher costs to develop Osler privately. This does not include the almost doubling of construction costs between the first estimates and the final contract sign off.

P3s are North America’s version of the PFI. In Ontario, just to add to the confusion, these are sometimes also called AFPs – alternative financing and procurement projects.

Like the UK, the more disastrous these deals looked, the more the government kept on signing new private deals.

It is remarkable that despite the Auditor General’s review of the Osler, nobody is doing an audit on the value for money comparisons produced by Infrastructure Ontario. Infrastructure Ontario has a glaringly obvious conflict of interest. On the one hand it is told to seek out these P3 deals, and then it has to evaluate whether they make sense. When you go through all the trouble of finding a private partner, you don’t want to prove that the deal doesn’t work.

The Ontario Auditor General particularly noted how Infrastructure Ontario had jacked up the value of risk the private sector was taking in order to justify the much higher private costs at the Osler.

In the UK, like just about everywhere else, sooner or later that risk rebounds on the government. Surprise! Not only were we paying exorbitant up-front costs to compensate for risk, but we were really carrying the risk too!

Now the UK Daily Telegraph estimates young people starting work this year will pay taxes for the government’s private finance initiatives until they are nearly 70 years-old.

The UK has saddled generations to come with massive PFI debt. The Telegraph reports taxpayers are saddled with $195 billion (Canadian) on public projects which are valued at only $85 billion. When you add in obligations to the private consortia for ancillary services, that debt is more like $368 billion (Canadian). A little over a third of that debt is tied up in hospital projects.

To put that in perspective, Canada’s Federal budget projects revenues for 2012-13 will amount to $255 billion. Yes, the UK’s PFI debt is greater than what Canada’s Federal government raises in yearly taxes and other revenues.

Each British household is committed to paying about $650 (Canadian) every year for the foreseeable future to tackle this obligation.

Now that the Cameron government is implementing its own austerity plan, many of the Health Trusts responsible for providing health services are teetering financially.

The Cameron government has already placed the South London Health Trust under the control of a special administrator. South London was running $1.6 million (Canadian) in debt each week operating three hospitals with 6,000 staff and serving more than a million people. Six other Health Trusts could potentially be in a similar situation. Given these PFI contracts do not allow the Health Trusts to scale back the operational side of these buildings, it is also impacting the clinical budgets of the hospitals that occupy them.

The Daily Telegraph reports some Health Trusts are now paying up to a fifth of their budget to service the PFI mortgages.

While the Health Trusts are on the hook for these costly deals, not all are happy with the operational relationship they have with the PFI consortium.

The UK Guardian reports that the NHS Lothian Health Trust is seeking legal advice over their PFI contract after the power went out at the Royal Edinburgh Infirmary for 11 minutes in March. According to the newspaper, surgical staff had to use hand ventilators to keep an anesthetized patient breathing in complete darkness for 90 seconds and then by flashlight for another nine and half minutes. A spokesperson for NHS Lothian said the private operator “had repeatedly put patient safety and lives at risk.”

Want to look at the future of Ontario’s health care system? You can still go to Britain.

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