Private Finance the Private Financing Initiatives When Essay

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Private Finance

The private financing initiatives

When the Private Finance Initiative was launched in 1992, it was seen as a mechanism to achieve extra public-sector investment by bringing in private finance for capital projects as well as a means to improve the public procurement process that was routinely criticized for poor project management and construction cost overruns. PFIs cut across a range of public services, including hospitals, prisons, public transport, roads, and schools. Each PFI depended on the public-sector purchaser to specify the outputs or outcomes it hoped to achieve, and put private-sector capital at risk for the delivery of those outputs or outcomes. By relaxing the emphasis on input specification, PFIs sought to mobilize innovation and optimize whole-life costs and quality to meet the public requirements. The financing mechanism served to reinforce the long-term nature of the relationship by linking payments to the achievement of outputs over the life of the contract, while incentivizing the private sector to achieve those outputs at the lowest possible cost (Forrer, Kee and Zhang 2002).

By the early-1990s, the U.K. government was promoting PFIs with vigor as a means to finance capital assets. In 1994, HM Treasury adopted a "universal testing regime" under which it would not approve any public-sector capital project unless the PFI option had been considered (Commission on Public Private Partnerships 2001). While this approach increased capital expenditure under PFI each year, PFI represented only 6% of total capital expenditure in the United Kingdom by the end of John Major's Conservative Government in 1997 (Commission on Public Private Partnerships 2001).

With the election of the Labor government in 1997, private finance took on an increased emphasis as a key element in the government's plans to deliver modern, high-quality services across a broad range of public-sector activities. Central to the government's plans was the need for a significant increase in investment to replenish a public-sector asset stock that had been allowed to deteriorate significantly. The new government took steps to overhaul PFIs within days of taking office and shortly thereafter, PFIs became a subsection of a broader framework of Public Private Partnerships that the government described as a cornerstone of its modernization program (HM Treasury 2000). The removal of barriers to PFI clearly helped to boost private finance activity after the general election in 1997. In total, over 400 contracts on PFI projects were signed by the end of 2000, with 80 to 100 deals signed annually since 1997. And the value of PFI projects was increasing as well, with approximately £8 billion of PFI capital raised from 1997 to the end of 2000 (IFSL 2001). As of May 2002, the Deputy Prime Minister noted that more than 200 schemes had been signed, with a total capital value of £14 billion. An accounting in October 2002 by the PPP Forum, an industry group, noted over £21 billion of contracts signed (2002) (Chung 2009).

At the same time, other European Union countries have embraced PPP as a mechanism to develop infrastructure within the boundaries of stringent Monetary Union criteria. (See Table XX, IFSL 2001:16.) Toll road projects in Greece and Portugal are under way and the Netherlands used a PPP framework to develop a High-Speed Rail Link between Amsterdam and Brussels (Travis and Merli 2000). The Government of Ireland opened its first PPP school in December 2002 and has announced the approval of many other PPP projects, including housing projects, roadways, wastewater treatment plants, and a new 70-kilometer metro for Dublin (Irish Government Public Private Partnership 2003). Looking beyond the European Union, three states in Australia-Victoria, New South Wales, and Queensland-have recently established a set of principles and have issued a list of projects for which they are seeking private-sector involvement, and other projects, such as the Melbourne City Link, are examples of PPP-style financing (Young 1996).

In spite of the brief history of PPP/PFI and a shortage of detailed evidence proving its long-term success, surveys within the market indicate that PPP/PFI may indeed be effective in structuring standard project financings, in which they pass to and contain the risks of construction costs, timing, and efficiencies in operations within private providers. The PPP/PFI approach seems especially appropriate within markets that undertake medium-sized projects, which can function as stand-alone entities, free of taxpayer support and which, after a fairly standardized construction period, revert to a low-risk "utility" profile. Not surprisingly, road projects are considered to be among the types of work where the Private Finance Initiative expects to deliver value for money ("Low Marks for PFI" 2003.) Interestingly, schools, which should have a roughly similar risk profile to roads, showed inconsistent results on cost (Mcmaster 2002)

The private financial initiative in National Health Service

Shifting the balance between the public and private sector was also enhanced by reforms which encouraged greater collaboration between the two sectors. Again, did this enhance the quality of care and increase choice for patients, and was this at the expense of their rights as citizens?

An early attempt was the requirement that NHS District Health Authorities introduce competitive tendering for domestic, catering and laundry services in 1983. The intention was to challenge the monopoly of the in-house providers of services in the expectation that costs would be reduced and greater 'value for money' would be achieved. This contracting out was given a new lease of life by the internal market and has been extended to clinical and clinical support services (e.g. pathology and pharmacy services) (Ruane 1997). In practice the financial benefits have been relatively modest, at least initially, and whatever savings have been achieved seem to have been at the expense of quality of service (Griffith 1999:24).

A second form of collaboration has involved the NHS contracting out patient care to the private sector. Such co-operative arrangements were first allowed on a voluntary basis in 1981, partly as a way of dealing with capacity constraints in the NHS. Subsequently, Health Authorities were directed by the Conservatives to use private hospitals as a way of reducing NHS waiting lists for non-urgent cases and those waiting more than one year. The creation of an internal market, allowing GP fundholders, DHAs and now primary care commissioning groups to buy services from the private sector as well as public providers, has enhanced the prospects of the independent sector treating NHS short stay patients. To date, however, most of this work has come from DHAs (Flemming and Oppenheimer 1996).

A third form of collaboration involves the use of private finance instead of public borrowing to undertake capital projects for the NHS. The Private Finance Initiative (PFI), as it is called, was introduced by the Conservatives in 1992 and, after a slow start, provided a major source of finance in the last years of that government and has continued under Labor. Under the initiative, new hospitals, new technologies, and equipment are all designed and paid for by the private sector and leased back to the NHS for a specific period. Some projects are also to be privately or jointly maintained by the private sector, thereby giving this sector much greater involvement in the day-to-day running of the NHS (Ruane 1997). Such arrangements are to be agreed to only if it can be demonstrated that they increase value for money and transfer risk to the private sector. While this may help governments keep down the cost of the NHS to the public purse it arguably has the effect of transforming the NHS into a private service by stealth (Young 1996).

Of course, from the patient's viewpoint, the PFI has the advantage of providing the level of resourcing that should help the NHS maintain a high standard of care. However, in so far as it involves the privatizing of a national asset, this initiative could be said to be dismantling their ownership rights as citizens over such an asset.

In sum, the attempt to shift the balance between public and private funding in the direction of the private sector has had mixed consequences for users of health care. While the growth of private health insurance has increased the choice of the better off to a limited extent, there is little evidence that it has not encouraged shopping around, nor has it created social divisions independent of social class? At the same time the encouragement of greater collaboration between the public and private sectors has increased resources for individual NHS patients at the expense of patients' rights as citizens (Sheldon and Young 1997).

Moral aspect of private financing initiatives in National Health Service

It is within this context that the rationale for the present volume is located, the central aim of which is to address explicitly the relationship between mainstream sociological theory and medical sociology in the light of a number of key issues within the field of health at the turn of the century. Whilst, as we have argued, medical sociology has never been an atheoretical discipline, it nonetheless remains the case, particularly in the current economic and political climate with its emphasis on evaluation…[continue]

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