Private finance initiatives: understanding organizational culture between sectors

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..

The Evolution and Emergence of PFI

Before PFI was initiated, the Ryrie Rules allowed private financing in the public sector. 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 Finance Initiative (PFI) was implemented, as well. The PFI involved the private ownership of public capital assets.

Soon after, the New Labour Party was presented with the immediate and challenging task of dealing with an insolvent NHS. The PFI had changed the structure and organisation of the NHS.

In 1997, NHS Trusts and Health Authorities had a debt of about £1 billion. The internal market, which had been created by the Conservative government in the early 1990s, had failed to bring in the benefits expected from markets, including more consumer-led services, fewer costs, and an improved quality of care (Warne, et al., 2002, Baker, 2000).

In response to the NHS crisis, "The New NHS: modern, dependable" (Warne, et al., 2002, (DoH, 1997) was published, analysing the past failures and possible future of the NHS, as well as a number of organisational changes that would help the situation.

This publication was a viable "first step in translating the emerging 'Third Way' doctrine into practice and was largely concerned with setting in motion the modernisation of public services in general and healthcare services in particular (Warne, et al., 2002)."

Because the New Labour Party was the government that had initially created the NHS, it felt qualified to develop a strategy that aimed to implement a modernisation programme that accounted for the demographic, social, and technological changes that had occurred in society during this time.

The party aimed to make sure that the founding principles of the NHS remained intact, yet initiated a modern, patient-led system. According to the government, this system would enhance the founding principles of the NHS by providing a faster, fairer and more effective health and social care services unit.

According to Warne (2002), "the emphasis on service delivery is underpinned by an apparent governmental desire to develop the concept of active citizens empowered and emboldened to make informed decisions about lifestyle choices, social duty and responsibilities and expectations of a new or restructured welfare state."

Approximately three years later, these government's changes in policy aims were analysed in the publication of the NHS Plan (Warne, et al., 2002, DoH, 2000) in an effort to illustrate the extent of the changes in the values, resources and culture of the NHS achieved or planned.

The following chart represents the organisational changes initiated by the new PFI-driven NHS model (Warne, et al., 2002, DoH, 2002).

1948 NHS Model

New NHS Model

Values: free at the point of service

Spending: annual lottery

National standards: none

Providers: monopoly

Staff: rigid professional demarcations

Patients: Handed down treatment

System: top down

Appointments: long waits

Values: free at the point of service

Spending: planned for 3/5 years

National standards: NICE, NSFs and single independent healthcare inspectorate/regulator

Providers: Plurality - state/private/voluntary

Staff: modernised flexible professions benefiting patients

Patients: choice of where and when get treatment

System: led by frontline - devolved to primary care

Appointments: short waits, booked appointments

The new NHS model stresses the importance of "community" in realising its organizational strategies (Warne, et al., 2002). Future patients are urged to make more informed life style choices, and in so doing, taking personal responsibility for their own well being in order to protect the greater good of society.

However, according to the plan, if an individual becomes ill or is in an accident, the state provides healthcare services that are "high quality, effective, economically efficient and equitable (Warne, et al., 2002)."

The organisational culture of the new plan upholds the underlying principles of the NHS, yet restates individual responsibilities. For example, Barnett (2002) notes that attempts to make individuals assume responsibility for themselves allows the government to "control at distance (Warne, et al., 2002)."

Similarly, the organizational culture of health care professionals has changed drastically under the new NHS plan. The NHS is still one of the UK's largest employers with most doctors and nurses being employed in the public sector (Warne, et al., 2002, DoH, 1998).

Over the past 50 years there has been a continuous countervailing process of boundary setting, which has resulted in changes to the autonomy of professionals, leading to a continued refinement of what is understood, sociologically, by the processes of professionalism (Warne, et al., 2002)."

For instance, healthcare professionals have had an increasing range of national standards of service provision in the form of National Service Frameworks (NSFs) imposed upon them, with which they are expected to both develop and provide their services.

National Institute for Clinical Excellence (NICE) has been created to make sure that all healthcare interventions are research and evidence-based and rely less on individual clinical judgement (Warne, et al., 2002, Freidson, 1970)

In the past, there have been many situations in which one health care provider funds a range of particular treatments while another does not. The new NHS plans aim to reduce this practice, subsequently improving the equitability and equality of service provision.

However, in many cases, physician power has decreased, as health and social care organisations have concentrated on meeting the cost implications involved. This may lead to a fragmented rather than a complete approach to meeting the needs of patients.

According to medical research, the implementation of PFI in the NHS means that specialist approaches will ultimately succeed over the "body of knowledge" of the existing professions (Warne, et al., 2002)

As a result, the idea of "the 'generic practitioner' is predicated on severing the hold specialists have on practice (for example, the rise of Psycho Social Interventions (PSI) in mental health nursing). Specialism leads to implementation rather than genuinely responding to user need (Warne, et al., 2002)."

Basically, the point here is that specialism is created for its own sake, not to help the patients, carers and users (Warne, et al., 2002, Illich, 1978). Since the introduction of PFI to the NHS, research reveals that "the whole culture of nursing has shifted from a hands-on approach, where senior nurses knew their patients, to a notice-board approach, where nurses refer to written information to account for the progress of their patients. This is certainly evident in mental health where policy places the emphasis upon 'paper chase' (notice board) approaches such as Care Programme Approach and KGV. Process, then, replaces caring (Warne, et al., 2002)."

Changes in Organisational Structure

The NHS has undergone a major organisational transformation since 2000. When it became clear that the conservative reforms of 1991 were not effective in improving health care, the New Labour Party introduced some major organizational changes, including (Dawson, 2001):

Introducing the Private Finance Initiative (PFI). "The Private Finance Initiative is simply a change in how the NHS raises capital for its new projects. Previously the treasury was responsible for funding all new projects. The PFI, which has now been introduced states that all funding for projects such as new hospitals must be secured privately at commercial rates."

The creation of Primary Care Groups (PCG's). As a result of the involvement of the partnership between the private and public sectors, specialists are now the dominant force in health care. "The NHS had long been in a position analogous to that in which someone (the GP) chooses a meal from a restaurant (the hospital), another person eats it (the patient), and someone else has to foot the bill (the NHS in the form of the health authority purchaser). The new PCG at least ensured that the person ordering the meal paid for it."

With the introduction of the PFI, the government removed expenditure from the Public Spending Borrowing Requirement (PSBR), as it gives politicians an incentive to create inflation and reduce the real amount of debt.

In addition, there is the transfer of risk from the public to the private sectors. Most experts agree that the private sector is more efficient in managing risk than the public sector, so the government hopes that hospitals will become more efficient in handling both design and completion risk.

One of the reasons for creation of the PCG's is that in the old system, all of the Thousands of shareholders were responsible for contracting themselves to hospitals,

Which was a time consuming and expensive process. The chart below shows the two organisational structures of the NHS, the 1989 model and today's model (Dawson, 2001):

The 1989 structure of the NHS the New Organisational structure of the NHS

DHA

Hospitals

District Health

Primary Care Trusts

Authority

Dentists

GPFH

Pharmacists

GP Fundholders

Health Authorities

NON-GPFHs

DHA+FHSA

Dentists

Regional Offices

Opticians

Department of Health

Pharmacists

National Centre for Clinical Excellence

FHSA

Commision for Health

Improvement

Family Health

Services Authority

Regional Health

Authorities

Health

One of the major changes in the organizational culture of the NHS is the reduction in the burden on general practitioners (GPs) (Dawson, 2001). The idea behind this change is that nurses are equally effective in diagnosing common ailments in primary care.

As a result, GP's no longer deal with basic general care cases, allowing them to practice their areas of expertise. Many NHS facilities are now staffed entirely by nurses, enabling care for a greater number of patients.

The Problem of Organisational Cultures

As the new NHS plan was realized, it became apparent that the union of the public and private sectors would not be an easy one, due to their varying fundamental organisational cultures.

One reason for this may be that its complexity lies in the coexistence of competing cultures. This is very much the case within the NHS, where the cultures, for example, of nursing, medicine and management are so distinct and internally closely-knit that the words 'tribe' and 'tribalism' were commonly used by contributors to the Inquiry Seminars on this subject (BRII, 2001)."

Tribalism refers to a sense of belonging, common goal and mutual benefits (BRII, 2001). In many cases, it is beneficial if it creates an environment of creative tension within the organisation. However, when placed in an environment with another tribe, it can threaten to "undermine the capacity of a large organisation to adhere internally to a set of agreed core values and to represent these values to the outside world."

Ultimately, when tribal groups disagree over territory in an organisation such as the NHS, the safety and quality of the care given to the patient is jeopardized.

The way forward must lie in creating an environment of mutual understanding among the groups rather than attempts by one group to gain dominance over others. If one group dominates in a service which calls on the skills of many groups, the interests of patients are not served (BRII, 2001)."

Private and Public Organisational Cultures

The NHS is acknowledged to have a distinct organizational culture. "The older cultural qualities are supportive to the morale of staff, in that the founding principles of equity and altruism are still held as important by staff, politicians and the voting public en masse (Doyle, 2002, Davies, 2000, p. 1000)."

However, patients that need particular treatments are bound by the constraints of this culture. The newer qualities of the NHS, which reflect the organisational culture of the private sector, have focused on the centrality of patient care, a strong commitment to evidence in practice, and a willingness to examine the quality of care (Doyle, 2002, Davies, 2000, p. 1000).

However, "it is not clear how primary care, led by a politically strong craft group who are independent contractors, will adapt to the organisational learning and attention to cultural values that is needed to lead the NHS itself in new primary care organisations. The individualism of GPs is known throughout the system and it is clear that the successful interplay of skilled managers with professionals in primary care will be crucial in meeting the challenges and tensions already evident in the tasks ahead (Doyle, 2002)."

With the new NHS system, the specialty of public health has been undergoing a fundamental analysis of its function and key aspects of its organizational culture. In many ways, it is doing so to meet the requirements of accommodating a multi-disciplinary membership and the need to revalidate its medical members.

Primary care trusts (PCTs) are fundamentally different to any previous structures proposed to bring primary care into the mainstream. Undoubtedly these organisations will need good professional public health advice and advocacy. Change is happening with limited resources. Because of the shortage of sufficient public health specialists to cover the multiplicity of new organisations (even with mergers), the new primary care organisations may be diverted from health improvement and face shortages of staff with the skills to focus on equity in health and healthcare (Doyle, 2002)."