£500m paid in botched NHS contracts to private companies

A showcase Labour government scheme aimed at harnessing the efficiency of the private sector in the NHS has cost the taxpayer nearly £500m in botched contracts, the Bureau of Investigative Journalism can reveal.

The initiative, introduced to help reduce waiting times, encouraged NHS trusts to sign up private providers to perform routine procedures, like knee and hip operations, in specialist clinics known as Independent Sector Treatment Centres (ISTCs).

But while waiting times did decrease, the Bureau can reveal that the government squandered £462.4m of taxpayers’ money through a series of ‘needless’ payments written into contracts that were risk-free to the private health providers.

The investigation, published in the Telegraph, comes as mass criticism of the Health and Public Sector Bill is threatening to derail the Health Secretary Andrew Lansley’s reforms.

Revelations of the scale of the waste under the ISTC programme, will add to the mounting concerns over the degree to which the Coalition Government’s Health reforms open the NHS to the private sector.

Professor Allyson Pollock, Director of the Centre for International Public Health Policy (CIPHP) at the University of Edinburgh, said that if the reforms go ahead, “The poor value for money of ISTCs will be multiplied thousands of times over. In a time of economic austerity this will be a catastrophe for the NHS if more private providers are brought in.”

The Bureau’s investigation shows that the taxpayer has been lumbered with a bill including over £200m paying for operations that did not happen; more than £186m for “buying back” treatment centres at the end of contracts, and a compensation bill totalling almost £60m paid to companies when planned ISTCs were axed.

Derek Machim, consultant and chair of the BMA’s private practice committee, was a member of the Department of Health’s Commercial Directorate set up to scrutinise ISTCs.

He explained that the scheme’s commercially sensitive nature made the contracts impossible to scrutinise at the time they were issued and he warned that the ISTC model is a canary in the mine for Lansley’s reforms.

He said: “We could not get any financial information because of the words ‘commercial-in-confidence. The private sector are very clever at extracting money from governments, but commercial sensitivity can hide this for years.”

“Virtually no risk”

There were two ‘waves’ of ISTCs. The first centre opened in 2003, while the second wave began in 2007.

Under wave one 31 contracts were awarded. Of these, 12 are still operating under the original agreement.

The bulk of the waste stems from an arrangement called “take or pay”, where the NHS allotted the private provider a set sum at the beginning of each year, in order to complete a fixed number of operations.

But the Bureau has found that of the 31 first wave treatment centres, just four were performing all contracted operations. In contrast, nine performed less than 75 percent. In total, the government paid £217m for operations that never happened.

The worst performer was the Greater Manchester Surgical Centre, run by South African group Netcare. There, only 56 per cent of contracted procedures were carried out. Netcare received nearly £38m for operations never performed.

Colin Leys, author of Confuse and Conceal, the NHS and Independent Sector Treatment Centres, said:

“The take or pay arrangement meant that there was virtually no risk – the private companies were going to get paid for the number of treatments that they had contracted for whether or not the patients were referred to them or chose to come to them.”

The government scrapped the “take or pay” element for wave two of the initiative, and reduced the amount paid for each operation.

Buying back the buildings
Overspending on treatments was not the only downfall of the ISTC programme.

Onerous contract provisions forced the government to buy back ISTCs after five years. This means that despite a huge taxpayer investment nine of the 31 centres initially set up have been forced to close, and others will go the same way as contracts end.

In 14 of the ISTC contracts the previous government agreed to repurchase the centres at the end of the contracts under a “Residual Value agreement”.

Six companies: Netcare, Care UK, Alliance, Atos Origin, and Clinicenta received a total of £59.8m compensation when the contracts were cancelled.

Get the data: £60m spent on cancelled healthcare contracts

Atos received £2.5m for cancelled contracts, despite concerns over technical blunders at some of its clinics in Greater Manchester, while Care UK received £27.7m compensation for axed clinics in Essex and the West Midlands.