The Private Finance Initiative (PFI) uses the equivalent of a full operational lease used by many governmental authorities in the UK. Financiers form a company borrow the money to (re)build a new hospital. The PFI company then leases back the building to the local Hospital Trust, but there's a kicker. As part of the deal the PFI company also gains exclusive rights to provide services such as facilities management within the hospital. It is a very very expensive method of financing the hospital (re)build. In recent year Governments liked this method of financing because it does not show up on the capital borrowing total for public finances, it is in effect a future operating cost. These contracts go on for 30 - 50 years.
It would be much cheaper for the public purse if the Government was honest and just borrowed the money up front and built the hospital using their own managers. In the news today is yet another report of a Hospital Trust struggling to pick up the bill for a PFI. Peterborough and Stamford hospital Trust have been criticised by the National Audit Office for poor financial control and mounting debt.
Much of the unplanned cost comes from the provision of services not included in the original contract. Minor changes such as moving a phone or installing an extra shelve must be be purchased via the PFI company. As there is no competition these costs are greatly inflated by the PFI company.
The consequences of the "overspend" caused by the PFI is that hospital staff including nurses are made redundant. Clinical services are cut back. Peterborough Hospital PFI was agreed in 2007, it is a very nasty financial legacy left by the Labour Party Government at the time. I've seen estimates of £800 Million required to rescue the hospital finances.
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