Cottage care in the past as profit forms the future

The Government is to use Scotland as a test-bed for its most radical private finance project - the creation of Britain's first private NHS hospital, where all patients will be treated by medical staff working for profit-making firms.

Scottish Office ministers are urging the private sector to build, equip and run a new public hospital in Stonehaven, a fishing town near Aberdeen. More than five companies have already offered to fund the pounds 6.5m centre, which will provide a wide range of services, including casualty, for up to 20,000 local people.

The initiative, which is backed by Grampian health board, the local health authority, has provoked a political storm. Labour, health unions and the British Medical Association say it marks the first, decisive step towards NHS privatisation.

Under the scheme, private investors will build and equip the new hospital, which will replace Stonehaven's two ageing "cottage" health centres - the Arduthie and the Woodcott. GPs will provide the in-house medical care but the health board will ask private firms to bid for the pounds 2.5m annual contract to supply all clinical and ancillary services, including nursing.

Although Grampian Healthcare Trust, the local NHS provider, is also expected to submit a tender, observers say that, with ministerial support, a private company is set to win. Firms will make their bids next month and health managers will announce the winner early next year. Because it is an NHS contract, treatment will continue to be free.

Health authority officials are turning to the private sector because they argue it can act faster than the cash-starved NHS. Frank Hartnett, general manager of Grampian health board, said: "With Treasury constraints on spending, the public sector cannot fund this project now. But top-quality private companies want to invest here right away. By using these firms, we can get an NHS hospital quickly and at no extra cost to the public."

Scottish Office officials, who are the driving force behind the initiative, agree. They argue that if the private sector builds and runs the new hospital, more public money will be available for other NHS projects.

But doctors' leaders and opposition MPs bitterly oppose the plan. They insist it threatens to destroy the NHS. Dr Sandy Macara, chairman of the British Medical Association, argues that "the very essence of the NHS" is at stake in Stonehaven. "Never before has an entire NHS clinical services contract been offered to the private sector. If a private company wins this contract, it will mark the end of the centrally planned and resourced health service - which has provided cheap, high-quality care across Britain for 50 years - and the beginning of a fragmented, privatised and ultimately more expensive service. That would be an unprecedented act of vandalism."

The proposals also worry local medical staff at Arduthie and Woodcott. They are concerned that a private company will bring in new employees or try to force down the wages of existing workers to increase profits. They also question how the health board will guarantee existing standards of care.

Mr Hartnett insists standards will be "among the highest" in Britain. "As a test case, this will be the most closely scrutinised hospital in the country." And he rejects claims that the scheme heralds the privatisation of the NHS. "This hospital will be part of the NHS and treatment will continue to be free. The only difference is that staff will not be public sector employees."

Whoever wins the contract, the Government wants to conclude the process by next April so that the hospital can open before the next election and ministers can use it to bolster the case for private-public sector partnerships in the health service.