Octagon Healthcare Group (OHG), the company which built the Norfolk and Norwich Hospital (NNUH) reported record profits last year as it was paid more than £62m by the NHS. At one stage Serco Investments Limited held 5% of OHG.
OHG doubled its profits to £17m after tax in 2019, up from £8m the year before. It also paid out a record £13.2m in dividends to its shareholders, a rise of 60pc in 2018, its annual report showed.
The NNUH, meanwhile, fell £60m into the red in the last financial year and warned that the costs of dealing with the coronavirus crisis would add another £8m to its deficit. The hospital was built under a Private Finance Initiative (PFI) in 2000, meaning OHG funded the costs.
The capital costs of the PFI hospital as given in the 1996 Full Business Case totalled £213.6 million but this was for 809 beds. The total cost for the hospital with 953 beds was £229.2 million. Of this, the base construction cost was £159 million, only about 69% of the total. Of the remaining £70.2 million, £33.8 million consisted of interest charges during construction and £36.4 million of development charges (£5 million for highways, £8 million for IT hardware and systems, £4 million for catering and other equipment, £6.6 million for consortium tender costs, £5.7 million for financial fees and £7.1 million for others).
Therefore the construction and development cost of the hospital was £183.1 million once we exclude the consortium tender costs, the interest charges during construction and the financial fees which together totalled £46.1 million. In addition to paying for these through the rent, it is worth noting that the NNUH had itself directly paid about £13 million for ‘PFI set-up costs’ between 1995 and 2001.
But the deal is controversial because the NHS has to pay the original £229m cost of building the hospital to Octagon several times over. Despite paying Octagon tens of millions of pounds a year, the amount it owes is only reducing by around £3m each year as much of the money is taken up by interest repayments and running costs.
Norwich South Labour MP Clive Lewis previously compared the deal to the worst credit card on a comparison site. He said “Surely Covid-19 has shown beyond doubt our NHS should focus wholly on keeping us well. The Government needs to stop pretending our health service is some kind of quasi business in which vital local institutions like the N&N are continually preyed upon”. He called for PFI deals to be reviewed.
An NNUH spokesman said it was in ongoing discussions with regulators about the contract. The deal with Octagon runs until at least 2037 and it still owes it £187m.
Octagon is now owned by two investment companies called Innisfree and Semperian PPP. They previously said that much of the dividend is paid to pension funds and they had worked with the hospital to reduce costs.
In November 2009, George Osborne then in opposition stated that “a Tory government will scrap Labour’s controversial PFI and replace it with an alternative model for funding major infrastructure projects” (The Observer, November 15, 2009).
No surprise, his lips moved, nothing happened! PFI is the unacceptable face of capitalism making loads of money for a few and burdening the entire National Health Service with expensive commitments.
Perhaps worst of all, the revolving door in the health sector saw Tony Blair’s former health adviser Simon Stevens become President of the US company United Health; Patricia Hewitt (one-time Secretary of State for Health) become a consultant for Alliance Boots and Cinven (a private equity group that bought 25 private hospitals from Bupa); Patricia Hewitt’s predecessor, Alan Milburn, worked for Bridgepoint Capital, and boasted a striking portfolio of jobs with private health companies (Milne, Guardian, July 2, 2009). In the Guardian of 15 August 2009, Peter Wilby pointed out that Sally Morgan, a Tony Blair aide, became a director of Southern Cross. And Simon Stevens (see above) was appointed chief executive of the NHS in October 2013.