Value for Money, Value for Health: Revitalising NHS Infrastructure Through Public-Private Partnerships

As documented by Akeso for a number of years, NHS infrastructure is in desperate need for revitalisation and investment.[1] For 2024/25, the cost to eradicate backlog maintenance sat at a record high of £15.9bn;[2] bear in mind, the same year saw a total NHS capital allocation of £8bn with only £1.9bn devoted for new hospital builds and upgrades.[3] Between 1997 and 2010, attempts to deliver more than 100 hospital projects through Private Finance Initiatives (PFIs) were well-intentioned but ultimately led to affordability crises for many Trusts. Since then, the use of PFIs to fund any healthcare projects is met with widespread controversy.

Now that it is clear the capital available is insufficient and that PFIs, at least in name, are neither politically nor publicly acceptable, how do we enable the large-scale redevelopment of the NHS estate, creating a sustainable and deliverable pipeline of infrastructure that is genuinely fit for the future, aligned to the 10-Year Plan, moves beyond the limitations of previous iterations of the New Hospital Programme (NHP), and ensures that Hospital 2.0 is finally realised?

This has prompted renewed attention towards the use of Public-Private Partnerships (PPPs) which offer a more transparent, fair, and effective solution to not only meet current infrastructure needs, but also by enabling care to become closer to homes and based off the needs of specific populations.

The Case for NHS Infrastructure Transformation

To combat ageing hospital sites, the NHP was introduced in 2020 to build 40 new hospitals in England by 2030.[4] Whilst well-intentioned, problems arose and the current government inherited a programme which was unfunded by 2025. Following this, a new approach is to be implemented: Hospital 2.0.

Construction of new hospitals will occur in 5-year waves, whereby main construction takes place in that period, but may be fully completed in the next. With three waves in total, the first is to commence between 2025 and 2030 whereby 16 hospitals are to begin development. Modern Methods of Construction (MMC) are to be implemented to reduce cost variability, de-risk delivery, and compress timelines.[5]

Most importantly, these new infrastructure builds must align with the sub-population they are to be serving. The lingering question remains; how can this actually be achieved?

The Left Shift: From Vision to Imperative

One of the three radical shifts from the NHS 10-Year Plan is to move hospital care to the community.[6] This has countless benefits such as an increased accessibility to care, reduced hospital demand, and economic growth. For the Hospital 2.0 approach to achieve these feats, it is crucial for the care models to be shaped around local needs. Using Population Health Management (PHM) will be critical in understanding key demographic and health trends such as chronic disease prevalence, aging populations, and socioeconomic factors like unemployment.[7] Determining these will decipher the most optimal locations for where community-based infrastructure should be positioned.

Whilst traditional hospital infrastructure for key elective and emergency services will always be required, rather than directly building new sites, healthcare on the high street models can be accomplished through renovating under-utilised buildings or spaces. This will not only save time and capital but also lead to economic benefits through creation of jobs and small businesses.

How PPPs Bridge the Financial Gap

PFIs: Lessons from the Past

From 1997 to 2010, PFIs were used by the government to deliver 109 hospital projects to address a lack of investment in hospital infrastructure during the years prior. Despite building roughly 20% of English NHS hospitals, it led to financial challenges for Trusts.[8] Mergers frequently occurred to tackle financial struggles with decision-making prioritising PFI over non-PFI hospitals because of the binding legal contracts in place. An example of this was in July 2012; three London hospitals of the Princess Royal University Hospital in Orpington, Queen Mary’s Hospital in Sidcup, and the Queen Elizabeth Hospital in Woolwich entered administration. In 2009, these three hospitals joined into one NHS Trust, South Lonon Healthcare. They inherited debt from PFI schemes for the building of Princess Royal and Queen Elizabeth, causing them to enter administration in 2012. At this point, the Trust was spending 14% of its entire income repaying debts from PFI contracts.[9]

Hospital 2.0 & PDC Funding Limitations

The transition to a standardised Hospital 2.0 approach, is to now be funded mainly by public dividend capital (PDC), with a modest number of contributions from land sales and charitable donations. This can make the model reliant upon Treasury allocations, and if these become subject to fiscal policies and spending reviews, funding is not definite. Furthermore, if macro-economic pressure intensifies, what does this mean to the incoming waves and their funding allocations? Another factor which can cause difficulties with funding is the inevitable political cycles whereby policies can fluctuate. There are evident pros and cons to alternative funding options, but it is pivotal that the most financially and effective funding channel(s) is chosen.

Why PPPs are Different

PFIs highlighted that contracting authorities often lacked the in-house skills to manage these complex commercial arrangements.[10] To avoid taxpayer loss, these skills need to be exceptional during times of distress, which are common during transformative projects like service modelling and redesign. The UK is the acknowledged world-leader in healthcare PPPs using the best public and private sector skills, ensuring that all the required expertise is drawn together.[11] This would include specialist services from architects, consultants, planners, engineers, building contractors, etc to enable delivery of an innovative hospital service.[12]

Moreover, it isn’t just about new hospital builds; it goes beyond that. PPPs can support the construction of new builds which are at the heart of communities, making care more accessible for all. By tailoring to the specific needs of those populations, PPPs can be structured to projects focussing on community diagnostic centres, health on the high street, frailty villages and many more.

This would not only be financially advantageous, but it also transfers a portion of the risk from the NHS provider to the private organisation. There is appropriate risk-sharing throughout the lifecycle of the project whereby a price is fixed for design, construction, and maintenance, and if costs or delays occur, the private partner will absorb this. It is important to note that not all risk is transferred to the private provider as this can deter private investment.

There are no universal criteria as to whether private or public investment should be used for a specific infrastructure project. Despite this, there are principles recognised by some government departments which can be reviewed through business case processes:[13]

• New – projects involving new builds are more easily structured for private finance as they avoid complications which arise from existing assets
• Stable – requirements and changes don’t change often during the contract as this can be expensive
• Separable – the privately financed asset can be maintained without operational conflicts as it is independent of other assets

Hospital 2.0 would tick these boxes, giving the relevant stakeholders an alternate financial mechanism through PPPs. Aggregated support programmes can be implemented and achieved through strong business cases which demonstrate value for money, stability, and innovative methods for the long-term. Each PPP should be evaluated by the HM-Treasury Green Book process to ensure the developed model and scoped deal are configured in the right way and offer the greatest VfM solution.

PPPs Enabling Community Care

As care is being brought closer to home, sites need to be produced either from refurbishment of under-utilised buildings or through new builds entirely. In either case, PPPs can be effectively used to support these projects. MMC are growing across the UK with one of these being modular builds.[14] Healthcare construction companies can tailor to the needs of the site through modular solutions, arriving on site between 70-95% complete using pre-approved designs. PPPs can provide the capital upfront to enable faster timelines, increased flexibility, and distributed risk proportionately. Alternatively, Trusts may be waiting on capital which can lead to delays. An example of the devastating effects of this is shown through Imperial College Healthcare NHS Trust which were part of the initial NHP scheme to revamp St Mary’s Hospital with expected completion by 2030, now to start in 2037 or even later.[15]

As stated through the previous paragraphs focussing on the importance of reliable capital injections and efficient operating models, it is just as crucial that the quality of the builds is matched. PPPs can provide specialist expertise in procurement and project management, leveraging selection of the most suitable modular suppliers. Utilising expert companies within healthcare infrastructure builds can also lead to a simple, singular, integrated contract.

But it is more than just the financial advantages PPPs can offer. The contract must also generate a strong return for the Trusts involved otherwise the only benefit would be the reliability of capital and expertise. In simpler terms, the infrastructure model must generate a return on investment. This may be through multiple avenues like reducing DNAs within a Trust from 10% to 5% and increased footfall within declining shopping centres. If contracts are carefully structured for the payment mechanism, repayment to the private provider can be directly related to the performance of the healthcare organisation. Using the Aligned payment and incentives (API) mechanism, it can enable a Trust to pay through a fixed element, based on the funding agreed for activity level. And secondly, through a variable element whereby payment is increased or reduced based on the actual activity and quality of care delivered.[16]

Conclusion

As we enter a new era for the NHS, improving our hospital infrastructure is a fundamental objective. Outdated sites and service models need to be redesigned most carefully with the allocated fundings. The vision for the NHS is clear; however, capital allocations remain both unclear and unpredictable. Providers have the opportunity to act now and potentially leverage PPPs to secure a reassuring future. Choosing the most advantageous delivery channel is the next step in ensuring delivery of sustainable impact across the UK.