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Have premises funds reached a ceiling?

Have premises funds reached a ceiling?
15 October 2010






Head of Primary Care and Community Services
EC Harris

Martin is an associate and Head of Primary Care and Community Services within the health sector at built asset consultancy EC Harris. Martin is based in the firm's Birmingham office and has worked in healthcare consultancy for 11 years. Prior to that, he had 11 year's managerial and planning experience in the NHS. Martin lives in Lincolnshire with his wife and stepson. Outside work his passion is rugby


Significant investment in primary care facilities has taken place over the past 10 years, delivered through GP owner-occupier schemes, third-party developments, publicly funded projects, and the Local Improvement Finance Trust (LIFT) initiative. However, restrictions on public-sector spending have been gradually limiting the development of new primary care buildings.

Faced with a loss of the growth funding that has typically been used to meet the increased revenue costs of new facilities, most primary care trusts (PCTs) have been forced to reduce the number of new capital schemes they can approve, cap budgets for individual developments, or put all new projects on hold.

A period of "capital constraint"
It is clear that these restrictions will not be eased in the short/medium term. While the government is committed to "increases in health spending in real terms in each year of the Parliament",1 capital allocations are to be targeted at reducing backlog maintenance, and revenue funding will be focused on "frontline" clinical services.

The need to deliver efficiencies of £15–20bn up to 2014 means that "organisations should … prepare for a period of capital constraint, particularly as they progress their quality and productivity plans."(1)

New schemes almost always require an increase in revenue funding for a period of time due to a range of factors, including: loan and interest repayments; provision of increased capacity; and the need to achieve higher building standards. Although many schemes involve bringing together services from a number of different buildings, few business cases demonstrate tangible savings in either clinical or non-clinical services.

Despite the large number of new and refurbished primary care facilities, in most areas some services are still being delivered from buildings not fit for purpose. The need to improve primary care facilities remains, particularly given the continuing importance placed on shifting services from acute hospitals to community settings.

The recently published white paper Equity and Excellence: Liberating the NHS makes no reference to the future funding, ownership or development of estates in the primary care sector, but it does contain proposals that will have a major impact on these issues.

A consideration of the current economic and political climate raises three key questions in relation to premises development in primary care:

  • How will decisions to fund new capital schemes be made?
  • How will the NHS afford new primary care and community health facilities?
  • How will new primary care and community health facilities be funded?

Investment decision-making 
in a reformed health service
The proposals set out in the white paper represent a further reform of the organisational structure of the NHS, and signal fundamental changes to the ways in which money flows through the system and to the ways in which resource allocations 
are determined.

At present, PCTs hold revenue funding used to reimburse GPs for the costs of operating their own facilities, lease facilities from LIFT companies or other developers and to pay capital charges on any premises they own. In addition, they contribute to, or pay in full, the maintenance and running costs of the primary care and community services estates. These funds are specifically identified in the PCTs' allocations from the treasury, but are not ringfenced.

The decision to fund or not fund new primary care premises is made by the PCT boards, in accordance with the Premises Directions, the NHS Capital Investment Manual and other relevant national and local guidance. Investment decisions are expected to be made in the context of the PCT's Estates Strategy and Strategic Service Development Plan (SSDP). Approval of schemes with a capital value in excess of £10m has to be secured from the relevant strategic health authority (SHA).

Clearly, the proposed abolition of PCTs and SHAs will require new arrangements for allocating funds to support existing premises and for determining investments in new facilities. These issues are not addressed in the white paper proposals but are currently the subject of consideration by the Department of Health and the treasury; details will be included in the forthcoming 
Health Bill.

Under the organisational structure proposed in the white paper, the options are to transfer the funding and decision-making responsibilities to the NHS Commissioning Board, to the GP commissioning consortia or to local authorities.

Given that the NHS Commissioning Board will commission GP services, there is a logic to the suggestion that it should also hold the funding for GP premises. However, until the remit, structure and composition of the NHS Commissioning Board is confirmed, its ability to make informed local decisions on premises funding cannot be determined.

Although giving control of primary care premises funding to the GP commissioning consortia would enable decision-making to be informed by local knowledge, these organisations are unlikely to have the appropriate estates expertise inhouse. There would need to be strict procedures in place to ensure no conflict of interest in the allocation of funds.

Another option is for premises funding to be held by local authorities. This would potentially enable the development of integrated estates strategies across a range of public-sector services, but it would break the link between the commissioning of services and the management of estates established in Transforming Community Services.(2)

Whatever the decision as to which organisation(s) will hold the funds for primary care premises in the future, the process of making strategic estates decisions is likely to be more complex than at present. Under Transforming Community Services, the management of the estates sits with the commissioners of services, rather than the provider.

The intention of this proposal was to enable commissioners to "engineer change and improvements" and to allow an "appropriate blend of providers to be established".(2) By owning the facility, or taking the head lease, commissioners should be able to align service and estates strategies and enable new providers to deliver services where appropriate.

Under the proposed new arrangements, commissioning for services provided in the community will be split between the NHS Commissioning Board and the GP commissioning consortia. Without a single strategic commissioning body that has control of estates, it will be much harder to implement coherent commissioning plans that are supported by the most appropriate estates configuration.

Primary care schemes and affordability
It is clear that the scale of investment in capital schemes will be much more limited in the future than it has been in the 10 years since the NHS Plan was published. Whichever organisation is given the revenue funding for primary care premises and/or the responsibility for allocating the limited resources, it will need to demonstrate that the cost of the scheme has been minimised and that there are clear financial and service benefits to be achieved.

Opportunities to deliver both financial and service benefits come from putting practices together, incorporating community services and working with other associated services, particularly local authorities. Creating larger facilities to replace a number of existing smaller facilities enables reduced maintenance costs 
and overheads.

By pulling together the various organisations that deliver care (such as in the "Total Place" model) it is possible to streamline pathways, achieve integration and improve client experience. With the emphasis on integrating health and social care, health improvement and local partnerships, facilities with multiple service providers represent a real opportunity to deliver clinical and financial benefits.

Securing funding for capital schemes
The government's statements on future availability of capital funding suggest that new schemes will have to be privately financed. The main options for a GP practice to procure a new building would therefore be to borrow the funding from an appropriate lender, lease a facility from a third-party developer or to participate in a LIFT scheme (how this is achieved will depend on the arrangements put in place for PCTs to divest of their shares when they are dissolved).

Although the availability of credit to small businesses is still much more limited than it was a few years ago, there are banks who are still willing to lend to GP practices and developers who have the appetite to raise the capital required to fund a new build. Some LIFT programmes are facing difficulties with securing investment in new facilities, but others are still very active; the introduction of the Express LIFT framework provides the means to extend this procurement route to new areas.

The abolition of PCTs raises the issue of how practices can demonstrate security of income to cover debt or lease payments, and there is a significant risk to practices if their development includes space that is intended to be leased to other service providers or if commissioning intentions change.

The way forward: more for less
It will undoubtedly be a challenge, given the competing pressures on future NHS resources, to release the funding necessary to support new primary care premises. The government has made clear its commitment to provide the finances necessary for the delivery of "frontline" clinical services, but other than in circumstances where there is a manifest shortage of capacity in the community or where buildings are unsafe and/or non-compliant, it is unlikely that new primary care facilities will be considered a high priority within any local health economy.

Any case for new premises will therefore need to be based on the facility being "cost neutral" in revenue terms or on it releasing sufficient savings in the delivery of clinical services to justify 
the investment.

Any GP practice submitting proposals for new premises will need to ensure it can demonstrate that the costs of the facility represent value for money and that the development will make a clear contribution to increasing efficiency and delivering sustainable quality improvements.

1. Department of Health. Revision to the 
Operating Framework for the NHS in England 2010/11. London: DH; 2010.
2. Department of Health. Transforming Community Services: enabling new patterns of provision. London: Department of Health; 2009.

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