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Focus on...coping with the credit crunch

The healthcare market is likely to be vulnerable to the financial turmoil, with public and private investment at risk

By Gareth Iacobucci

The healthcare market is likely to be vulnerable to the financial turmoil, with public and private investment at risk

After two years of painstaking planning and much crossing of fingers, a group of GPs in Bradford, West Yorkshire, have just received the news they have been waiting for.

Their practice has secured £9m funding from its PCT and bank backers for a state-of-the-art surgery that will cater for more than 20,000 patients.

‘It's been a long process,' says Nick Nurden, business manager of the Ridge Medical Practice. ‘The level of security the bank is looking for has certainly increased in the last six months.'

Yet the brutal reality facing primary care is that these kinds of projects are unlikely to get off the ground at all in the current climate. Just like any other business, everything that comes with a big price tag – from new premises to contracts to Government health drives – is about to come under intense scrutiny.

The decision by Richard Branson's Virgin Healthcare to shelve its plans to enter general practice may have been welcomed by some GPs, but the enthusiasm may be akin to voters in the US celebrating the initial vote-down on the plan to bail out Wall Street's fat cats.

Approaching storm

Like birds fleeing in anticipation of a storm to come, many analysts believe private firms like Virgin will escape relatively lightly compared with the rest of general practice.

GPC negotiator Dr Chaand Nagpaul warns: ‘GPs will inevitably be affected, because the Government has put funding at the mercy of the commercial sector.

‘Twenty years ago, in the previous credit crunch, the NHS wasn't so vulnerable to the ebbs and flows of the market.'

Paul Samrah, medical account director at chartered accountant Kingston Smith, says up until now healthcare has been ‘fairly recession-proof' but that investment in areas such as premises and IT may suffer.

He adds: ‘Any capital investment is going to go through far more rigorous testing to determine whether it is really required. And IT spend is down to the PCT and is out of practices' hands. You hope they are managing their funds and that money isn't going to be sucked away by the next tier of Government.'

There is also a risk GPs will be hit where it hurts most of all – in their pockets. The credit crisis comes with next year's pay talks already well under way.

Noises coming out of the GPC camp, which is trying to negotiate a favourable deal over the phase-out of the MPIG, have so far been pretty optimistic.

But what now the odds of the Government pushing for a fourth successive pay freeze as part of a wider clampdown on public sector pay?

Mr Samrah believes the Treasury will be putting pressure on the Department of Health not to commit to any pay increases.

‘Everyone's very apprehensive,' he says. ‘When we have the next round of budget review come April, the Government is going to be under increasing pressure to try and cut budgets. That will filter down.

‘In time, the credit crunch is likely to have an effect on the healthcare budget. Although the impact might not be immediate, it will become apparent further down the line.'

Ali Parsa, managing partner at leading private provider Circle, believes the credit crunch will inevitably lead to cuts in GP funding, despite the Government's current commitment to increase spending. ‘In the short term, the Government is committed to spending and will increase public borrowing to do so,' he says. ‘But in the medium to long term, this doesn't make sense. After it has met its obligation, all bets will be off.'

Circle was among the early winners in the bidding process for Lord Darzi's polyclinics, in conjunction with a group of GPs in West Kent.

With bids costing up to £100,000 a time, Mr Parsa says the going is about to get even tougher for GPs wanting a slice of the shift of resources from secondary to primary care.

‘It has been suggested this will be only bad for the private sector. I actually think it will be bad for everyone but perhaps relatively worse for small groups of GPs who wish to add to their services,' he says.

‘Capital will gravitate to where there is more certainty. So, the governance of the organisation and the size of its balance sheet is more important.'

Dr Nagpaul warns: ‘The credit crunch will create an obstacle in the development of premises, in terms of securing investment. We're likely to see a slowdown in the progress of many capital projects.'

Plans under pressure

GPs will have to hope capital is more forthcoming than the Department of Heath, when quizzed about the possible impact of the crunch and its plans for belt-tightening.

Asked if the Government had contacted PCTs or SHAs with spending advice on the back of the crisis, a spokesperson replied helpfully: ‘No.'

Asked if there were any measures the Department expected trusts to take, the answer was also ‘No'. And asked about GP pay, the spokesperson said it would be ‘wrong to speculate'.

But when it comes to big Government spending, there is already speculation aplenty – much of it grim.

A string of ambitious plans for health are set to come under pressure from the Treasury.

One of those in the firing line could be the £250m cardiovascular screening programme, which has already seen its rollout slowed to just a few trusts next April, after the DH originally promised vascular checks for everyone aged 40 to 74 by that date.

For the much-maligned PCTs, the crunch comes just as many were starting to turn around their finances. An Audit Commission report found half of the 302 NHS trusts and PCTs in England had performed well or strongly in the way they used their resources, with only 3% failing to balance their books. But all that could be about to be blown out of the water.

Worcestershire PCT was one of those with huge deficits four years ago. Now chief executive Paul Bates is among those who believe the credit crunch could affect long-term health projects in the county.

‘The period of growth we've had cannot continue,' he says. ‘It's going to be difficult to manage those expectations. I am having to remind people of the history of Worcestershire's finances and that we are determined to maintain stability.'

Steve Barnett, chief executive of the NHS Confederation, adds: ‘The Audit Commission's figures show what NHS organisations can do in the right conditions. In the current economic situation, it is likely significant financial challenges lie ahead.'

For GP leaders, negotiations – tempestuous enough recently – look set to get even tougher.

Dr Nagpaul says the Government must continue to invest in general practice or risk failing to meet its own pledges made in Lord Darzi's review: ‘Either the Government will have to tone down its aspirations or it will have to invest.'

Nick Nurden, fresh from the green light on his practice expansion, says the deal was reached through both the bank and PCT buying into the practice's ‘forward-thinking' ideas.

‘The PCT said we want you to deliver these services, so let's work to make it happen.

‘In fairness, we had it on the go for a while before the credit crunch started. Whether we would be embarking on it at this time, I don't know.'

Sadly, the answer is likely to be No.

Potential targets for belt-tightening

GP Pay

GPs will be sure to put up a fight against another pay freeze. Experts have warned the Government will be under pressure to cut funding, but given the Government's eagerness to put an end to MPIG, a zero pay increase would be possibly the most hardline decision yet.

Clinical initiatives

Even before the credit crunch, sceptics were warning that ambitious plans to implement
the national CVD screening programme at a cost of about
£24-34 per check could be unrealistic. Other potential targets could include the NHS programme for IT and funding for psychological therapies.

Private sector investment

Virgin has already announced that its primary care plans are on hold, and Boots has refused to rule out scaling back on its plans to host more in-store GPs. Sainsbury's, which has already opened one in-store GP in Manchester, says it is still in talks to work with more PCTs. Tesco says it is concentrating on pharmacy.

PCT finances

Signs are beginning to emerge of trusts tightening their belts in the face of the global financial meltdown. Worcestershire PCT is one with a troubled financial history. It's chief executive Paul Bates underlines how important it is to remind people of that and warned: ‘We are determined to maintain stability.'


Will primary care finances be safe from the crunch?

Depressingly, no. Although NHS budgets may not be as exposed to market forces as some sectors, the increased private sector role makes it far more vulnerable than in previous downturns. Added to that, heath spending will surely be one of targets for hawks at the Treasury.

Will the private sector be hit harder than GPs?

Virgin's decision to shelves it plans for general practice has led to speculation of a mass private sector withdrawal. Although it is true private firms are unlikely to launch expensive new ventures, some may see Government-backed projects as a rare cash cow in hard times.

Could GP pay be a target?

The Treasury will try clamp down wherever it can on public spending. However, with the MPIG phase-out, some feel it would be too hardline to impose a fourth pay freeze. A lot will depend on how long the crunch lasts.

Coping with the credit crunch

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