Operation Hinchingbrooke: Inside the NHS’s first privatised general hospital

HealthInvestor, December 2011

Circle’s takeover of NHS Hinchingbrooke has got the green light – and so begins a high-profile test of private sector involvement in the NHS. Tom Ireland hears about the firm’s strategy for the failing hospital.

There were many in the health sector who suggested, on apparently good authority, that the Hinchingbrooke takeover would never happen. Nonetheless, it has: Circle ‘gets the keys’ to the Cambridgeshire hospital on February 1, having finally been granted approval by the Treasury and Department of Health. Should Circle’s takeover work, the way NHS hospitals are run in England could change forever. Should it fail, it will be an embarrassing blow to both Circle, and the wider independent sector’s hopes of a greater role in the NHS.

The takeover has been in development since 2008, and has gone through extraordinary levels of scrutiny. And for all the media frenzy and talk of history being made, the NHS is no stranger to big partnerships with the private sector. As Circle’s chief executive, Ali Parsa, says: “We need to move on from the tired debates around profit. Pharmacy makes money from healthcare; GPs make profit from healthcare; mental health organisations make money. Hospitals are unique in the NHS, in that you are not supposed to.”

Still, there is something extraordinary about the deal: its scale, its ambition – and its risks. All eyes will be on Circle’s first move at NHS Hinchingbrooke in February.

The deal

Circle Health will be contracted to take over the management of NHS Hinchingbrooke’s 223-bed general hospital in Huntingdon, Cambridgeshire. Over the course of the seven to 10-year deal, the hospital’s revenue is expected to be around £1 billion; Circle is expected to improve the hospital’s efficiency, balance its books – its debts currently stand at £40 million – and improve care.

As part of the deal, Circle’s liabilities are capped at £7 million: the firm has agreed to make working capital contributions of up to £5 million, and it will be required to pay a further £2 million “termination fee” if either party ends the deal because deficits have risen above this £5 million cap. The contract can also be terminated at any time on a “no cause” basis by the NHS trust; in such an event Circle would be compensated, up to an unknown but capped amount. Circle is planning to pay down the hospital’s £40 million debt over 10 years; and the firm will only get paid if the trust is in surplus. There are also no guarantees of activity or volumes at the hospital, as there were with many Independent Sector Treatment Centre contracts.

Should Circle succeed in turning around the hospital’s chronic indebtedness and start generating surplus, it’s less clear how any profit will be shared between the company and the hospital itself. The group says this figure is commercially sensitive, but the idea of Circle making returns on its investment for shareholders is a long way off: “a scenario for five, 10, 15 years’ time”, says a spokeswoman.

Hinchingbrooke’s property and assets will remain with the NHS, as will the hospital’s staff.

Circle’s strategy

While Circle’s competitors line up to put the mockers on the deal, it should not be forgotten that 19 of the UK’s biggest public and private healthcare players bid to run Hinchingbrooke themselves back in 2008. Circle’s chief executive, Ali Parsa, rails defiantly against anyone who claims the turnaround of Hinchingbrooke cannot be done. He says the Cambridgeshire hospital has “problems of no greater magnitude than Bradford or Burton”, referring to two NHS treatment centres that Circle has operated in the past.

Still, some say the numbers just don’t add up. Hinchingbrooke has struggled since it opened in 1983, and it is said attempts to close the hospital decades ago failed only because it was in the then-prime minister John Major’s constituency. Its financial problems became more pressing in 2007 when a new treatment centre failed to attract enough patients. Since then it has failed to shake off debts of around £40 million on its turnover of roughly £105 million. On top of those debts, it also needs to find £230 million as part of the NHS’s wider £20 billion efficiency savings programme known as ‘the Nicholson challenge’.

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