by Idris Pearce
The recent White Paper on the National Health Service, Working for Patients (CM555), has hit the headlines on several social issues, but it also has considerable implications for the large and significant NHS estate. While the latter has not featured in the popular press it provides a major opportunity for health service managers to work with the private sector to improve the standard and quality of accommodation available to provide health care to patients. Both the White Paper, and immediately before it the Health and Medicines Act, encourage managers to ensure that what they do with their estate is part of a logical and continuous process that began some years ago. It is about to reach a climax in public-sector terms by enabling managers to view and use health service estate assets almost as entrepreneurially as their private-sector counterparts. The last few years have established the estate as a key resource, taking its place in the management considerations of the health service alongside finance and personnel.
Like all good businesses the NHS estate has a “mission statement”. It is there to provide an estate that meets today’s needs and anticipates tomorrow’s requirements for health care in buildings — designed for maximum efficiency to improve quality and value for money — that are safe, well maintained, professionally managed and conveniently located. That is a managerial aim, not a description of the physical environment. It means having the knowledge, advice and information to be able to make informed decisions that will contribute to the total service provision, a factor relevant to the whole range of public-sector estates.
Dealing with the estate is not a functional but a management issue that prompts the right questions at a strategic level, recognising that senior estates professionals need to know and understand overall objectives, have operational experience, and know how the hierarchies interlock. These attributes are every bit as important as real estate expertise, and the same criteria apply to the private sector. While those in the public sector may assume that the private sector is more blessed with resources, that is generally not the case. But there the timing and access to resources and implementation of plans can be made on business terms, rather than being dictated by a political agenda and the strait-jacket of public-sector funding mechanisms. In either case, the decision-making hierarchy — the strategic influence on the estate — and the freedom of action within that strategic planning framework with the consequent accountability for action need maximum clarity.
The NHS estate is made up of some 1,700 properties sitting on a parcel of land about half the size of the Isle of Wight, currently worth, at existing use value, about £18.1bn.
Half the estate’s acreage is taken up with institutions for the mentally ill and mentally handicapped: the rest includes not only hospitals but a metropolis of industrial, retail and domestic properties. About one in five of our hospitals was built before Pasteur discovered germs and Lister the value of antiseptic surgery. Many of the older hospitals still reflect the influence of Florence Nightingale’s ideas from the mid-19th century. The last burst of hospital building was triggered by Enoch Powell in the 1960s, and is beginning to experience some of the problems of the construction methods then used: about 30% of the estate will require major repair or replacement in the near future. Two other characteristics pose problems. Many of the larger estates — the mental health and mental illness institutions — are sited in the middle of the green belt and some of them are listed. The difficulties of ensuring that our built heritage represents the best examples while making the most of resources is a balancing act familiar to most in the landed professions.
Until very recently information about the estate was largely missing, so not only did the estate not figure in the management process in the health service but decisions made about the estate itself lacked a logical thought process.
Since the mid-1980s work has been going on to put this right. An estate data base has been established to enable an analysis of the performance of the estate to be undertaken. This means that plans can be made for maximum resource rationalisation, including property.
Alternative costed service and property options are evaluated and an investment programme and estate control plan for each district and site drawn up, resulting in an estate operational plan which includes an agreed implementation programme.
At the end of all this the estate is making a legitimate and welcome contribution to the health service’s strategic and corporate planning process, marking the culmination of a lengthy and difficult “hearts and minds” exercise. To an extent, the entrenched attitudes about the efficacy of new build have been uprooted. The reluctance of some to recognise the status of the estate has gone, replaced with a more entrepreneurial attitude, and a programme of training for both general managers and estates professionals is now moving into place. By devising parallel training I hope we will ensure an informed awareness of the estate in tomorrow’s NHS managers, coupled with a greater breadth of knowledge and understanding in those dealing with the estate itself. Together they will have a proper perspective of the estate as a key resource in the provision of health care.
Part of this programme of reform deals with the use of space, which could have a major effect on the economics of running the NHS estate. Some years ago the Nelson Hospital in the London Borough of Merton conducted an audit on the way in which space was used: for an outlay of £500,000 some £2.5m was realised and annual running cost savings of £500,000 achieved by rationalising a site whose functions were absorbed into the Nelson Hospital. Sadly, the principles were not taken up enthusiastically by other health authorities. What was needed was for senior management to demonstrate the will to look for such savings, a view substantiated by the National Audit Office last year. To show the world at large that the Nelson experiment was not a “one off”, a year ago we began the Estate Utilisation Project by conducting similar exercises in six district health authorities.
So far we have established the methodology for undertaking a space utilisation audit, and hope soon to be able to say what the gross and net benefits might be.
What we are seeing from the Estate Utilisation Project is a challenge to conventional and traditional attitudes and the creation of a management environment where capital assets of both space and equipment are matched to the business activities of the health service. As such, they dovetail neatly into the concepts in the White Paper by establishing a multi-scenario approach that can be adapted to a future which contains as many uncertainties and changes as the present.
The underpinning methodology for the Estate Utilisation Project is a multi-disciplinary simulated planning exercise, known as “Mereworth”, that considers in parallel all planning needs — service, use of capital and the estate — and so enables the management team to participate in decision-making on an informed and informative basis.
Any fool can get rid of property, but it takes careful planning and judgment to ensure that the right property is sold or the right estate decisions are made: Mereworth helps health authorities to make these decisions. It also helps them to make decisions about overall service planning in all health service disciplines, contributing to an imaginative method of planning a health business as a whole.
An important aspect of the Estate Utilisation Project is to expose true occupation and utilisation costs, one of the principles that underscores the capital charges system being introduced by the White Paper. For 40 years capital has been a free good. The proposals in the White Paper to charge for its use will concentrate the minds of managers on the condition and size of their estate.
Units will pay a charge based on interest on the capital already invested in land, buildings and equipment, with a depreciation charge on the buildings and equipment. Real money will circulate between districts and regions and so hospitals should quickly come to understand the value of their assets and the price of paying for capital tied up in them.
Awareness of these costs will play a large part in promoting a greater awareness of what the estate offers in terms of better maintenance, a more congenial environment, effective use of space, and lower costs. Coupled with the current policy of reinvesting the bulk of the proceeds of land sales to the originating authority, capital charges will be a potent force in reassessing and reducing the amount of space held. Self-governing hospitals will find that their estates and their use will be an important feature in balancing the books.
“Income generation” has been the watchword of the last 18 months in the run-up to the White Paper. Encouraging people to think of the revenue aspects of their activities, along with the potential for increasing revenue, has spawned a range of relatively modest joint ventures. Two in particular involve the development of shopping facilities in hospitals in conjunction with the British Airports Authority’s Sky Shops and the development of para-medical or community activities within the new developments. The scope is enormous, including more private accommodation for private health patients, hotel accommodation for relatives and minor operation patients, bus services or mini-bus services for visitors and so on.
On a broader canvas it would be possible to include community-based facilities offering day surgery, GP facilities, physiotherapy and pharmacy all on the same self-supporting site. In some areas, no doubt, these could extend to sports injury clinics, research parks and science parks. These are not pipe dreams — they are beginning to happen now.
Many of these became possible through the Health and Medicines Act which enabled the Secretary of State — and, on his behalf, health authorities — to “acquire land by agre ment and manage and deal with land”. Until the Act was given the Royal Assent in November 1988, the Secretary of State was empowered only to hold land for the provision of health care. Health authorities are no longer obliged to sell the freehold of surplus sites.
They can retain an interest in the development of surplus land, grant leases or, in some cases, include commercial operations as part of health service development.
Alternatively, a commercial development could be structured so that health care was included in the building package. A shopping or a residential development, incorporating premises for a GP or community-care facilities, while immensely attractive to health authorities, could be made acceptable to a developer. One aspect of Sir Roy Griffiths’ report on “care in the community” concerns itself with unlocking land sales more quickly by freeing the considerable tracts of land surrounding certain institutions in advance of their final closure.
Of even greater significance are the new possibilities for providing residential accommodation for staff.
It is my firm personal belief that the NHS should stop being a landlord for its staff. That is a specialist task which consumes considerable amounts of management time which would be better devoted to health service activities.
That is not to say that the service needs no residential accommodation — student nurses, trainee and junior doctors and other essential clinical and nursing staff will always need accommodating on site or near a hospital. And some, hospitals which have recruitment difficulties will need to provide accommodation as an incentive to attract staff.
The first challenge is what to do with the existing stock. After disposing of some, health authorities are beginning to consider partnerships with outside professionals — housing associations in particular. The housing association would use its professional management skills to improve the existing stock and then manage the accommodation.
Other ventures with housing associations, developers or a volume housebuilder could produce new stock, perhaps on health authority land, with the NHS retaining nomination rights for rented accommodation and pre-emption rights for purchase, and perhaps even “buy back” provisions so that property can remain available to the NHS and help a larger number of people to begin to ascend the home ownership ladder. Further, ownership could be supported by an equity participation scheme such as that run by Nationwide Building Society in the London area.
While the Health and Medicines Act stops short of permitting legal partnerships and joint companies, it opens the door to many possibilities, ranging from granting leases to putting together complex deals to retain an income flow either from the rents from development yields or a share of the profits when a development is completed and sold on.
In most instances, however, it will still be the most sensible option to dispose of the entire health service interest in the surplus site. Complex developments and joint ventures will be the exception rather than the rule. There can be no question of health authorities becoming developers in their own right: the service is there to promote health care, not to develop property. Estate management is a support service and not an end in itself. Further, there is still a substantial amount of fat that can be disposed of or developed. Perhaps as much as a quarter of the current estate could be sold off over the next 10 years, but because it has not been in the first wave of rationalisation it will be more difficult to deal with.
We have recognised that health authorities will need help in handling this sort of development, and a nucleus of professional advisers will accordingly form a Commercial Development Advisory Panel. It will be made up of experts from the property world, institutional finance and the legal profession, backed by officials from the Department of Health. The panel’s main objective will be to ensure that health authorities are advised on the best way of handling complex, high-value real estate opportunities and to monitor the acquisition and implementation of that advice.
Although health authorities will normally be expected to take the advice of the panel, they themselves will be responsible for commissioning the advice and acting on it once they have established the way forward. Their panel’s expertise will be available to the whole of the health service, including self-governing hospitals, and will help health authorities to take on the role of “intelligent client”.
Everything will be done in close co-operation with the commissioning health authority because part of the aim is to build up reservoirs of expertise and knowledge by introducing “state of the art” techniques in property development and financing. While health authorities will not be compelled to refer to the panel, it will be a brave general manager who assumes he has at his disposal the expertise and resources to handle the sort of schemes likely to present themselves. The panel will produce an annual report and series of case studies — and perhaps one day it will work itself out of a job.
It will have a close relationship with the top management of the NHS as it will report to the NHS Management Executive, and through the executive to the policy board and ministers. The panel will be a major influence in ensuring that the most is made of NHS assets, including those of self-governing hospital trusts to whom its services will be available.
The next logical step, in development terms, would be for the NHS to obtain terms analagous to those found in the private sector. There we find ourselves embroiled in the arcana of Treasury funding rules and the public-sector borrowing requirement.
“Unconventional” finance, as the Treasury terms it, would embrace schemes such as forward selling land or accepting a proposal from a commercial contractor to fund a development on the basis of a single contract embracing both the building of the new hospital and the purchase by the contractor of the sites to be released. The acid test would be to find schemes which, in Treasury terms, balance the overall cost and risk in its favour — in other words provide best value for money.
Such proposals are acceptable only if they demonstrate that private-sector involvement brings advantages other than the financial — acknowledgement that short-term borrowing from the more expensive private sector does no more than facilitate or speed up the release of the value inherent in the land. In other words, public-sector activity was being determined not by private-sector borrowing but by the value of the underlying publicly owned asset which was being brought into play.
Of course, there would be considerable advantage in health authorities being allowed to establish or participate in limited liability, joint venture companies or legal partnerships to reap the maximum from surplus property by being more active partners.
Their commercial partners would invest their expertise, experience and enthusiasm — and perhaps private-sector capital — with the health authority investing perhaps no more than its surplus land.
We have travelled a considerable distance during the past few years in developing managerial attitudes to the estate. There is an opportunity to make much more dynamic use of this major resource which is both a cost centre and potentially a profit centre. An enlightened partnership between the private sector and the NHS needs to develop, with both parties willing and able to learn from the problems and abilities of both.
I am proud to have been part of the beginnings of that process.
