The solution to the NHS funding crisis? Its property

https://www.theguardian.com/commentisfree/2017/mar/09/solution-nhs-funding-crisis-property-buildings

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The NHS was offered little relief in Wednesday’s budget. The proposed spending increase of £250m in social care the first year and then £130m the following two years will hardly cover inflation, let alone other cost pressures that the shortfall places on the health service. With such austerity the NHS faces years of underfunding, according to a King’s Fund report.

Yet the most promising avenue towards financial salvation is not even contemplated. The NHS is one of the country’s largest property owners; but also one of the least efficient property managers. Decades of debate have raged between those who want to keep it that way, and those who want to privatise or outsource property management to the private sector. The glaring third alternative has been left by the wayside – professional management of NHS property while maintaining public ownership but isolated from short-term political meddling.

The British Medical Association asks for a short-term £10bn funding increase, which would bring the NHS up to about 10.3% of GDP, still below spending in many other European countries such as Germany or Sweden. The government simply stalls, requesting NHS efficiency savings of £22bn by 2020. It refuses to clear the path towards professional NHS property management beyond the marginal initiative of the NHS Property Services, which manages only a fraction of the total portfolio.

The NHS in general, or each individual trust, has no detailed list of assets or even a basic understanding of the portfolio value and yield. Without a professional understanding of the extent of its real-estate portfolio, or recognising the market value, it lacks incentives to maximise value. Many of the buildings owned by the NHS are not even managed to maximise healthcare quality. For example, because of political pressures, opening new hospitals and health facilities is much easier than closing old, underused and inefficient NHS buildings, despite the fact that transferring services to more modern facilities will usually deliver better health outcomes.

International examples point to the benefit of specialisation by separating the property operations from the service providers, while retaining public ownership. In Sweden, local healthcare providers are serviced by a separate property company, both owned by the local government. A similar example in the UK can be demonstrated by London & Continental Railways, which has successfully helped to develop the commercial assets around King’s Cross, Waterloo and Stratford stations in London, and around the former Manchester Mayfield station.

A separate professional holding company at a national or local level would improve visibility of asset and portfolio data (floor areas, running costs, metrics such as building costs per medical procedure/patient) and would help make the case for closures, proving that a closure can be about good estate management and health outcomes, rather than being incorrectly attributed to “NHS cuts”, as usually seems to be the case. Over the coming years, many new ways of delivering digital healthcare can be realised, which makes it even more important to adapt facilities quickly and efficiently.

If the entire NHS portfolio were transparent and professionally managed, the value it would create would help to fund healthcare. One can draw a parallel to retail chains such as Tesco that earn more on their property management than on sales in their shops. Most NHS properties are in residential areas and so can easily be redeveloped in ways that yield more housing as well as better health provision.

If such a holding company for the property could generate a return of a modest 3% yield, it would mean almost £2bn in additional funding for the NHS. This may seem marginal for a budget of £116bn last year, but could prove decisive and, together with the operational efficiency gains, it could end up being a much larger sum since healthcare specialisation and new healthcare technology require functional, yet flexible facilities. With the two management organisations at arm’s length, it would help to raise quality, as well as release land for much-needed housing and offices, while earning a higher return on some of its property.

In recent years, investing in NHS facilities in cooperation with the private sector through private finance initiatives has gained a poor reputation, perhaps rightly so. This makes it even more important for an independent and professional property holding company to develop its own competence. That may also be a prerequisite for any future cooperation with private sector partners. Frustratingly, the political impasse creates a need for simplistic solutions – spend more or prioritise public fiscal balances. This solution may not suit those looking for a quick fix. But it may turn out to be the only realistic long-term funding plan for the NHS.