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  • Hinchingbrooke: the countdown to failure
    John Lister

    Wednesday 18th March 2015

    The disastrous contract for private hospital chain circle to run Hinchingbrooke Hospital in Cambridge has now been branded a "failed experiment" by the Commons Public Accounts Committee. But the MPs have only just woken up to a problem some of us have been warning about for years.

    Almost exactly five years ago, as the shortlist of bids was shaping up in the contest for the 10-year 1 billion franchise to run Hinchingbrooke, health union UNISON warned in a press release "Private firms can't run a general hospital." It took just three years of bitter experience to prove them right.

    In April 2010, the only shortlisted NHS contender, Cambridge University Hospitals Foundation Trust, had just pulled out of the bidding.

    That left Circle Health competing with Ramsay Health Care UK, and Serco for the contract to run Hinchingbrooke, which then had a turnover of 96m, but was lumbered with a 40m historic deficit after falling foul of the government's so-called "payment by results" system as implemented by the inept and insensitive East of England Strategic Health Authority.

    Although it is small in NHS terms, with up to 310 beds, a busy A&E, 25 paediatric beds and 12 SCBU cots on site, and a mix of emergency and elective admissions, Hinchingbrooke hospital was more than six times larger and many times more complicated than the average private hospital in England. It is more than ten times larger than Circle Health's extravagant private hospitals in Bath and Reading - which have scraped through financially only on the strength of treating NHS patients in otherwise empty beds.

    UNISON's Eastern Region Head of Health Tracey Lambert said "We are shocked to find that none of the shortlisted firms has any experience of running clinical care in a medium-sized hospital. Surely that should be a basic requirement?

    "We can't understand how these three companies got through to this stage of the tendering process: they should have been ruled out from the beginning as completely unsuitable to run a busy general hospital."

    But the bids weren't thrown out: instead the bidding became even more fiercely competitive, winding up with Serco and Circle each trying to outbid the other with implausible promises to generate huge cash savings - and restore the fortunes of the hospital.

    East of England SHA was already notorious for its eagerness to promote private sector solutions, and Dr Stephen Dunn, its Director of Strategy, seemed determined to force through a franchise deal to put a profit-seeking company at the helm at Hinchingbrooke, despite the only, grim, precedent.

    Seven years earlier, in a reckless experiment, private contractors (Secta) had been the first company to be put in charge of an NHS hospital (Good Hope Hospital in Solihull). This adventure wound up as a predictable, costly failure, with the Trust even deeper in debt, the contract prematurely terminated, and the management taken over by a neighbouring Foundation Trust.

    Learning nothing from this past fiasco, Dr Dunn and his chums were all too keen to let Circle have a go, and even more enthusiastic when in a final round of bidding, Circle offered the biggest (albeit completely baseless) promise to generate savings, claiming a staggering 311 million could be saved over ten years.

    This outbid the equally tenuous Serco proposition, so the implausible deal, which meant Circle's profits would not begin until they had got Hinchingbrooke's finances into surplus, was rubber stamped by NHS East of England, and by the new Tory-led coalition, already pushing their own plans to split up much of the NHS into bite-sized chunks for private bids. The contract was signed in November 2011, to take effect from the following February.

    Everyone involved seemed to be happy: Dr Dunn said:"This is a momentous day. Circle secured this operating franchise following an open competition. They outshone the best of the best from the NHS and independent sectors. This will usher in a new era, unleashing innovation into the NHS, with staff and patients firmly at the centre."

    The private sector were delighted and grateful: even before the deal had been signed, Dr Dunn had been awarded prizes by Healthinvestor magazine for his efforts to create this franchising experiment.

    Tory ministers and the media embarked on a wild love affair with Circle, the private company that claimed to be a 'partnership' offering 'shares' to its staff - with allusions to the successful John Lewis Partnership - but was run by city slickers and owned by hedge funds.

    Ali Parsa, a former Goldman Sachs director, was the mercurial driving force of Circle, beloved by the media despite his cavalier disregard for facts, and kept popping up, most frequently on the BBC, but also in the Daily Mail and even the health trade press.

    But things quickly started to go wrong. Ten months later, in November 2012 a National Audit Office report on The Franchising of Hinchingbrooke Health Care Trust was published, as the financial performance and patient satisfaction ratings of the hospital took a sharp turn for the worse.

    The NAO criticised NHS East of England's lack of rigour in the scrutiny of the final contract and noted that the Circle contract was based on "assumptions that were not directly informed by previous experience" (page 7). It warned of the franchising out of management: "This approach is untested in the NHS and it is too early to establish and understand the outcome." (page 40)

    The NAO went on to question the central tenet of the contract - the huge commitment to cash savings:

    "Circle's projected savings of 311 million over ten years are unprecedented as a percentage of annual turnover in the NHS. If delivered, Circle's proposal will make savings of over 5 per cent recurrently each year over the ten-year life of the contract.[] However, Circle's bid did not fully specify how it would achieve these savings." (NAO page 8)

    There was also a brutal bottom line if the company failed to deliver: it would get paid nothing, and could lose up to 7m before escaping if the contract goes seriously wrong:

    "Circle only receives payment when the Trust generates an in-year surplus. If the Trust does not generate a surplus in a given year, Circle must cover up to 5 million of the shortfall from its own resources. If the 5 million threshold is breached, either Circle or the Trust board, with the Authority's approval, have the option to terminate the franchise." (NAO page 29)

    The NAO report did not see that Circle was already expecting to miss its first year 9.9m savings target by almost a quarter. Indeed during the summer of 2012 the company itself was propped up by raising another 47m from its astonishingly patient but as yet unrewarded investors.

    A Health Service Journal report based on an unredacted copy of Circle's business plan, revealed a planned 20% cut in workforce - 320 jobs, 130 of them clinical posts. (HSJ November 8 2012:13)

    Less than a month later Circle's founder, front man and chief executive Ali Parsa stepped down unexpectedly as Chief Executive, with a 400,000 pay-off. Days later a highly critical Commons Public Accounts Committee was told by Sir Neil McKay, chief executive of the SHA at the time of the contract, that there was no real plan B if Circle walked away: there was only a token, 3-person Trust Board in place.

    Somehow in 2013 the company managed to wriggle free of such critical scrutiny, but outside of the limelight the management regime at Hinchingbrooke was a far cry from the carefully-spun public image of Circle Health as a "John Lewis-style partnership," owned by its staff.

    The 2013 NHS staff survey revealed a very different picture, of a Trust that scored worse than average on 19 of 28 key measures, and in the worst 20% on almost half the questions. Despite the talk about "partnership" Hinchingbrooke staff reported above average rates of bullying - and just 27% of staff felt there were enough staff for them to do their job properly.

    Staff didn't feel empowered, but exploited. Circle time and again refused to meet with staff unions. Staff were required to wear new uniforms sporting 'Circle Hinchingbrooke' in place of any NHS logo. The company would not even allow staff time to attend their "partnership" meetings. Vacancy levels grew, as did the bills for more costly agency staff to keep services running.

    In the summer of 2014 Hinchingbrooke was one of just 19 to be referred by the Audit Commission to the attention of Health Secretary Jeremy Hunt because of its chronic financial problems. The level of company subsidy to the Trust was rising towards the 5 million threshold that could allow Circle to cut its losses and walk away. The position of the Trust was undermined further by policy decisions of local health commissioners: Circle were not getting the special treatment they had pinned their hopes on.

    Meanwhile behind the scenes Circle as a company wound up its much-vaunted Virgin Islands-based "Circle Partnership", through which staff had been given worthless shares which gave them no power, paid no dividends, and they could not sell.

    Circle - based in the tax haven of Jersey - decided that staff would now to be given undefined numbers of "free" shares making up less than 10% of the restructured company: so they would still have no voice in the running of either Circle or Hinchingbrooke Hospital.

    The main company, Circle Holdings, which took all the decisions, is almost entirely owned by hedge funds, many of whose top bosses are long-time donors to the Conservative Party. The company has never made a profit, and would have collapsed already without extensive patronage from the NHS (which accounts for 93% of Circle's income) and repeated cash handouts from its wealthy owners.

    Things began to unravel faster towards the end of 2014, with the imminent publication of a highly critical report on standards of care from the Care Quality Commission, a collapse of support from the "Friends and Family" survey which Circle had once boasted about, a deteriorating financial position, worsened by a continued exodus of staff and soaring costs of agency staff.

    Papers for the Trust Board's October meeting listed the dangers of "contract penalties and deductions" for poor performance could add up to a massive 1.6 million - with another 800,000 at risk if the trust lost out on validation of some of its invoices.

    Early in November 2014 Hinchingbrooke's Finance Director Jenny Raine left her post, amid growing signs of chaos. The company's half-year report showed Circle's "support payments" to the Trust had reached 4.85m - just 115,000 short of the 5 million figure that could allow Circle to escape from the contract, or demand a renegotiation.

    UNISON called for Circle to be sacked; but it was not until January, just before the publication of the critical CQC report, that the long-expected announcement was made that Circle was pulling out. Deficits had already exceeded 7 million, allowing the firm to walk away without additional payment - leaving the NHS to clear up the mess they had left behind. The Trust has now called for a 9.6m bail-out from the NHS.

    The Circle era at Hinchingbrooke was a triumph of spin over substance, of clever PR over performance. Even as the company announced its departure it briefly threatened to take legal action to overturn the damning CQC report, and whipped up a short-lived media frenzy over an absurd allegation of a Labour party "plot" to unseat Circle. The Daily Mail did its best to keep this lame horse running, but as the date for its departure loomed, Circle dropped its challenge to the CQC findings - quite possibly to avoid further exposure of its failings as the company bids for other NHS contracts elsewhere.

    So UNISON and the campaigners were right all along: private firms can't run a general hospital. Whenever spurious calls are made to bring in private "expertise", the grim lessons of Circle's failure should be a reminder of how it can go wrong. Hinchingbrooke now looks like the Good Hope scenario all over again, as an NHS Foundation trust could be the best hope for getting the Trust back on track. If the private sector seems to be the answer, you are asking the wrong question.

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