A groundbreaking £1bn, 10-year deal for a private firm to run a struggling NHS hospital has been confirmed.
Circle is to take over Cambridgeshire’s Hinchingbrooke Hospital in February – although it will stay in the NHS.
The deal will see Circle assume the financial risks of making the hospital more efficient and paying off its £40m of debts.
But fears have been raised it could pave the way for “wholesale transfers” of hospitals to the private sector.
There are a group of about 20 hospitals which have run into financial difficulties and Labour accused the government of wanting to see more of these deals under its shake-up of the health service.
The accusation was denied by ministers.
Nonetheless, the Circle deal is being seen as a significant step in the evolution of the health service.
Although private sector firms already operate units that treat NHS patients – such as hip replacement centres – the firm will become the first non-state provider to manage a full range of NHS district general hospital services.
Good? Bad? Indifferent?
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“There are a group of about 20 hospitals which have run into financial difficulties and Labour accused the government of wanting to see more of these deals under its shake-up of the health service. ”
I was under the impression that it was the Labour Party that had started the tendering process that led to the take over? If so, the complaint is a bit limp.
“Good? Bad? Indifferent?”
Good if it works, bad if it doesn’t.
@Chris_sh – good point, it was under Labour that the disastrous PFI and other misguided policies put massive financial strain on hospitals, so their carping is somewhat hypocritical.
A little digging on companies house suggests we should take a closer look at Circle’s ownership structure and its ability to take on not only the £40m debt it’s inherited but also the pressure of delivering effective clinical services at the same time as shareholder value.
More to come on this aspect soon…
The NHS does not have to worry about shareholder value, since shareholders are taxpayers. Circle, on the other hand, does. Shareholder value & profit will always be their top priority, not patients. So when you go to a Circle hospital, you will know you don’t come first as a patient…the shareholders come first.
I guess it was too much of a dream to think that there would be at least ONE thing left in the UK that is not subject to profit and shareholders. The idea of the collective, public good really does seem dead in today’s Britain.
Good!! , as long as there are enough alternative options around. If a private company is able to increase efficiency and make a profit, good on them. The danger is that the service may suffer. My belief is that if there is enough competition around a private company will not be able to reduce service without losing lots of patients and revenue needed to pay the 40m debt. I am expecting good things and believe privatization of more hospitals would not be a bad thing.
I also note how Circle is backed by Tory donors and run by an ex-Goldman Sachs banker. So I’m sure everything will be all right..
Circle have been mentioned in private eye a couple of times, doesn’t inspire me with confidence.
Prateek, it’s not just that Labour wrecked the hospital, they actually started the privatisation process. Circle were shortlisted by them pre-2010 election.
Health and profit dont mix the liberals should be ashamed of themselves
That’s right, blame Labour for the coalition’s wholesale destruction of the NHS! When did Labour ever advocate “wholesale transfers” of NHS hospitals to the private sector? Well your lot are in power now and you must take responsibility and suffer the political consequences for your privatisation of the NHS. We warned you that Lansley’s Bill would turn the NHS into a full-blown commercial market, putting competition before patient care. This privatisation is just a start. Private companies will cherry-pick quick profits, potentially forcing local hospitals to go bust. Hospitals may even be fined for working together. Goodbye to the collegiate, co-operative culture of the NHS.
Unlike billgav I think health and profit can mix – subject to proper safeguards and regulation. I would like to think that a private firm can deliver a good service without layers of red-tape. We shall see.
@ Prateek Buch
“delivering effective clinical services at the same time as shareholder value”
Now there’s an oxymoron if ever I saw one
What a disgrace the BBC are now.
To fail to mention the fact that this hospital was put out to tender by the previous Labour Government & then to parrot Labour’s claims about the current Government’s plans is worthy of FOX News.
Health and profit have always mixed in the NHS – GPs are not state employees.
Mack, you should probably read Andrew Hickey’s comment again before you go all shrill:
“Prateek, it’s not just that Labour wrecked the hospital, they actually started the privatisation process. Circle were shortlisted by them pre-2010 election.”
I.e. this is nothing to do with Lansley’s bill, the coalition continued a process Labour set into motion while the were still in power.
@Squeedle:
“I also note how Circle is backed by Tory donors and run by an ex-Goldman Sachs banker.”
Aha. that’s why Labour short-listed them for this job!
What I find fascinating is the way in which this BBC article has changed since it went live around lunchtime. Originally it pointed out that this is almost a mutual, since this “private company” is half-owned by employees.
As for the deal itself, it looks pretty good to me. The hospital was pouring money down the toilet and delivering poor service. There were two options on the table: close it, or bring in competent management. Competent management cannot often be found inside the NHS, and letting it go out to private management on the basis of “make it work and you get to keep the difference over 10 years” seems like an excellent way to keep it open and bring standards up at the same time. Note that at the end of that period, it reverts to the NHS, hopefully with the major problems all resolved.
I don’t see the problem here.
“Health and profit dont mix …”
Hardly true – one of the major sticking points on the formation of the NHS was the Doctors (who at one point voted 8:1 against the NHS) wanting to keep the right to sell their practices.
@Andrew Suffield:
“Originally it pointed out that this is almost a mutual, since this “private company” is half-owned by employees.”
To be fair, that was the basis upon which Andy Burnham called them in in the first place.
Still free.
has to met targets set down by the Government
so what’s the problem?
I feel rather uneasy about this – I have seen too often what happens when private companies take over and exploit every loophole possible to squeeze profit out of a tightly defined remit. The conditions are fulfilled in name, but you know the difference anyway. I haven’t seen this in any context close to health care: let’s hope the contract was drawn up properly – surely, everything depends on that!
However, on the upside, this could act as a test case: let’s see whether it works. If it works well, we can all calm down and have a more open and less emotional debate about private involvement in the NHS, if it doesn’t, well, then we know that the NHS model is a better idea. I just hope we can give it some time to see how it goes.
@Tony Dawson
“To be fair, that was the basis upon which Andy Burnham called them in in the first place”
That is a very fair comment. What I find strange about what is happening with the Labour Party at the moment can probably be summed up in this episode (probably as I’m not aligned and don’t know a huge amount about politics).
They could have kept quiet about it and waited to see if it was a success (which I suspect it will be), they could then have gone to the people and said something along the lines of “We had plans to sort out the issues of waste in the NHS and the results show that we could have made the savings required to sort out the deficit”.
Now of course, they look barmy for attacking something they started and if it does work then they can hardly go around saying “…but it was our idea really”
This is a management issue. Over the last few years this hospital’s management has been inadequate. I fail to see why this should have been the case particularly as the incoming company will maintain the conditions of service for staff. It is a popular myth that NHS management is an unnecessary overhead despite it being the largest organisation in the land. The problem is managerial incompetence in some cases as demonstrated by this situation. At the end of the day it is patients and staff who bear the brunt of poor managment so it is in their interest that I reluctantly accept the decision.
This decision should be welcomed. There are concerns amongst many about whether non-NHS organisations can run accident and emergency services. But you will never know until you try. And this is not experiment for experiment’s sake putting patients lives at risk. Given the hospital’s financial problems the alternative is likely to be closure. The staff will also continue to be NHS employees so they have nothing to fear
Circle is half owned by its employees, health professionals so let’s see if this quasi-mutual model works. If it doesn’t we will know, if it does we can look to extend the practice where appropriate. Evidence based policy is often talked about. This is a chance to get the evidence.
@Henry Gruijters
Let’s be clear about what privatisation of the NHS really means: vast sums of taxpayers’ money which at present are distributed to everybody and are available to all this country’s citizens through the health care system are going to be handed over to private companies who, after dramatically reducing costs by sacking staff will hand as much of that taxpayers’ money to a small band of people called shareholders, many of whom will not even be citizens of this country. The wholesale transfer of NHS hospitals to the private sector will mean that huge sums of taxpayers’ money will be just given away to a relatively tiny group of people for an inferior service. Is that really what you want? Haven’t you noticed that it is private companies from banks, to Woolworths to care home providers that always fail? So why do you go on asserting that the private sector is always more efficient than the public.If the profit motive really worked the world wouldn’t be in the financial mess it is in.
Correction
line two
should read “as much of that taxpayers’ money as possible”
Nobody could give a good answer to David Dimbleby’s question on Question Time last night: How are Circle going to mange to pay off Hinchingbrooke’s £40m of debt?
The answer is that getting your foot in the door is worth money. Circle may be able to make some cost savings, but they won’t get all £40m back that way. So they have decided that this will be their “loss leader”. Once the principle of privatisation has been accepted, we can all stop using these comforting words about how exceptional a case Hinchingbrooke is, and we can get on with the process of wider privatisation. That’s the stage at which Circle will look for a return on their “loss leader” investment, by making more deals which are much more favourable to themselves.
Yes, Labour started the process. The differences between the three parties are narrowing.
The people who really care about all this are the private companies. They are hungry for business, jobs, and profits, in a world where there is a shortage of all these things. They will lobby, cajole, manoeuvre, glad-hand, persuade ceaselessly until they get these things. You can’t really blame them. It’s capitalism in action. Sometimes it’s good for the nation, sometimes it’s bad for the nation. The private companies don’t much mind which.
The people who don’t care enough are the politicians. Some of them start with principled objections, some of them don’t. All of them know that the way to end up with a lot of well-paid business consultancies after they retire is to be nice to business while they are in office. Somehow they all end up being business-friendly.
We used to stand out against all this. But then the hedge funds and the Cleggs moved in, and the rest seems to be history.
ColinW
Posted 10th November 2011 at 5:48 pm | Permalink
What a disgrace the BBC are now.
To fail to mention the fact that this hospital was put out to tender by the previous Labour Government & then to parrot Labour’s claims about the current Government’s plans is worthy of FOX News.
I don’t know what you heard but, in the ‘BBC Today’ interview with the ‘Circle boss’, the fact that it had been initialised by Labour was mentioned 3 times. It used to be just the Tories who whined about “BBC bias”, now It’s their coalition partners!
If I get sick, I wanted to be treated like a patient and not like a f***ing customer! How many hospitals like this do Circle run? None. We the taxpayer built this hospital, Circle get to come in and milk it and it all goes pearshaped – it’ll be the taxpayers on the hook.
The hospital was on the verge of closure.
Give it to someone else to have a go.
A recent analysis from City insiders described Circle as “an investment for risk lovers”.
So a company described as a risky investment is now going to have the power over life and death.
Can’t we just bail out this hospital? And if not, why? We bailed out the banks, certainly human life can be bailed out? Or does capital continue to come before the needs of human beings?
And in the last three years, Circle made *losses* of £40m, £20m and £35m.
So they can’t even manage their own business. How will they be able to manage an NHS hospital with such a large debt, continue to provide the same service *and* make a profit?
So in order to see if a company can clear a £40m debt the government approves a £1b deal?
Surely paying off the £40m, and appointing a proven management team from a successful NHS hospital would have made more sense?
But then again I’m not someone who is going to be offered a position on the board of a healthcare company when I lose my parliamentary seat.
Whatever way you choose to describe, it ti is still Privatisation. Thanks LibDems.
1. Exactly the same amount of money will be spent on this hospital as has been in the past.
2. Service at this hospital was already inferior.
3. The only way that Circle are going to be allowed to continue this contract, or get others, is if you are wrong, and they deliver a better service for less money.
4. If Circle fail then they bear the entire risk – they will lose all the money they have invested in the hospital.
These two questions are in fact the same question, and this was actually the first thing attempted. All NHS organisations that were eligible to take over running it refused to do so. (And with it £40m in the hole, this is not very surprising)
The remaining options were to close it or to let somebody else have a go. All three parties concluded that if there was a way to keep an NHS hospital open and providing free healthcare then it was worth a shot.
Yes. The reason why they are a risky investment is because they aren’t focussed on making a profit, and this is because they are a near-mutual that is owned and run by actual healthcare professionals – doctors and nurses – for the purpose of providing healthcare on a better model than the NHS. Their specific mission is to get hospitals run by doctors instead of bureaucrats.
This is a highly risky investment because nobody expects them to turn a large profit. They don’t even expect to do it and aren’t really trying to do it.
So, who do you want running your hospital? The doctor, or the bureaucrat?
@ Andrew Suffield wrote:
The reason why they are a risky investment is because they aren’t focussed on making a profit, and this is because they are a near-mutual that is owned and run by actual healthcare professionals – doctors and nurses…
I don’t know if you are misinformed or are seeking to misinform. Circle is 51% owned by Circle Holdings which is entirely owned by hedge funds. The biggest shareholder has donated over £500,000 to the tories. Other shareholders are also big donors. This arrangement may or may not work – Circle has lost two of its big three NHS contracts – but please don’t pretend Circle is anything other than a profit-driven investment company.
• Andrew Suffield
Posted 11th November 2011 at 7:53 pm | Permalink
“The wholesale transfer of NHS hospitals to the private sector will mean that huge sums of taxpayers’ money will be just given away to a relatively tiny group of people for an inferior service. ”
1. Exactly the same amount of money will be spent on this hospital as has been in the past.”
So Circle are doing it for nothing? Really? Out of the goodness of their hearts? Why are they getting a billion then?
Re. Chris Nicholson. “The staff will also continue to be NHS employees so they have nothing to fear.” That is a rather bold statement. Are you an NHS employee at Hinchingbrooke? If you are then I take it that you are relaxed about your future. If you are not then how can you know that jobs at Hinchinbrooke will be secure?
@Andrew Suffield:
So, who do you want running your hospital? The doctor, or the bureaucrat?
—
I want the doctor to do the medical work and bureaucrats to run the management/business side of the NHS. Or do you think doctors and nurses, like GPs, should be accountants as well?
And as pointed out above, Circle is not a mutual and their business model is indeed run on profit. Except, seeing as they had losses in the past three years of £40m, £20m and £35m, they’re not doing a good job. If they can’t make a profit in their business, how do we expect them to turn that hospital around?
Hinchinbrooke Hospital isn’t really in debt at all except by the criteria of that artificial construct the internal market. The internal market was introduced by the Tories in order to shift the goalposts. They knew that it would be impossible to privatise the NHS without being able to show that parts of the organisation were failing. That’s why they introduced the internal market model, to create the artifical circumstances by which hospitals could be judged to fail or be in debt. This model was introduced throughout the public services, particularly in schools which were supposed to be responsible for their own budgets and in competition with one another. Under the original form in which the NHS was established, any debts incurred by a hospital were absorbed by the umbrella of the NHS. It was all one organisation. From what I have read, Hinchingbrooke’s medical record was among the best in the country, with high patient satisfaction. However, funding problems arising from the internal market conspired to present a picture of the hospital having a £39 million debt, thus providing the perfect opportunity for it to be transfered to the predators to in the private sector. My great regret, as a Labour party member is that in power Labour did abolish the internal market in the NHS.
correction
My great regret as a Labour Party member is that when in power Labour did not abolish the internal market in the NHS.
1. I had a lot of questions about Circle and the structure of the takeover, some of which have been answered. The BBC intervewers were useless. Why did it need a Dimbleby to ask the killer question – how does Circle intend to pay off the £40m debt, so more answers please?
2. Recently I had two cateract operations (one on each eye – clever clogs) paid for by the NHS arranged by my GP and performed in a private hospital. Very high standard of day care.
3. If the government is honest about continuing to allow GPs to spend the money, if Circle do a bad job GPs will send their patients elsewhere.
4. The NHS is failing old people in a terrible way (see recent report). A management team from McDonalds would sort the problem in days, but the NHS management seem incapable of sorting it. Its not always, public – good, private – bad or vice versa.
Then you haven’t experienced the horror of the NHS, where doctors are run ragged by failed management and capital investment sits around unspent because the bureaucrats can’t make up their minds what to spend it on!
No, I think they should have accountants working for them.
This is the critical point. The NHS management have consistently and comprehensively failed for years. It’s about time we stopped rewarding failure with guaranteed employment and an unassailable monopoly, and tried to find some people who can actually do their jobs.
I realise that not everybody understands how corporate investment works, but you could at least attempt to find out how this company operates before sounding off about it and getting all the facts wrong. The owners of a company do not automatically control it – in fact, most private companies (excluding subsidiaries) aren’t controlled by their largest investors. The standard for private investment in startups is that the company founders retain control as long as they deliver increased company value at certain critical points. Note, they aren’t required or expected to deliver a profit, and in fact any startup that returns a profit is considered to be mismanaged (you’re supposed to spend all your revenue on expanding the business). To this end, the “owners” (or more precisely, investors) usually hold non-voting preference shares.
Now on to actual facts: Circle Health Limited is 49.9% owned by employees (which means they get half of any sale after preference shares are distributed). The other 50.1% is owned by Circle Holdings PLC, whose major shareholders are currently three hedge funds, totalling 62.4%, one VC at 14.7%, one private healthcare provider at 5%, and one mutual fund at 12.9%. You’ll note that it has a PLC in its name – it’s currently in the process of being listed on LSX, so this is all public and easy to find out.
It is run by its founders, an engineer and an ophthalmologist. Its clinical structure is carefully separated from the business control, and is so important to them that they put it in the company name. Each unit within a hospital is run by a separate “circle”, which is led by a doctor. Each circle is autonomous and makes its own operational decisions, including financial ones.
Hopefully this explains why you were completely wrong, and this is a long way from being a “profit-driven investment company”.
No, they’re doing it for the difference between the amount of money wasted by bad management in the NHS and the amount of money that is actually needed to provide a good service.
If they can give the same service for less, by avoiding spending money on management consultants and hideous failures like Labour’s “Choose & Book” system, I’m all for it. If they can transfer clinical control to doctors at the same time, then we’re looking at a viable model for getting the NHS back on the rails. There’s an open question over whether they can pull it off, but this is something best judged by results. The contract appears to have been structured correctly: if Circle fails, they’re the ones who lose everything. (And the hospital will probably close, since the NHS management is unwilling to keep it open anyway)
The Observer is now telling us that Circle admit they will struggle to provide the same levels of care and that patient care may indeed suffer. They go on to state that Circle has an “aggressive” business model and Circle themselves admit their drive for profit & expansion “could affect its ability to provide a consistent level of service to its patients”. SImply admitting that patient care, rather than profits, will suffer before the ink on the contract has even dried doesn’t reflect well on the government and does not bode well for patients, either.
http://www.guardian.co.uk/politics/2011/nov/12/care-private-company-nhs-hospital
“I’ll cut the deficit, not the NHS.” – David Cameron
“No more top-down reorganisations of the NHS.” – David Cameron
“No to privatisation.” -Nick Clegg
The Tories are not only selling the NHS off to a possibly dodgy, already loss-making, risky company. They are destroying the NHS before our eyes and you LibDems are letting them do this. Shame.
@ Andrew Suffield
You really are struggling to justify this one aren’t you? I suggest that you go to the website of Business Insider Europe which claims that the privatisation of Britain’s National Health service has begun and reveals that Circle is run by a former Goldman Sach banker. http://www.businessinsider.com/hinchingbrooke-hospital-nhs-2011-11 You could also visit Red Rag’s website which will give you the names of the part owners of Circle that have donated huge funds to the Tory party http://www.redrag1.blogspot.com
The reality is that, although there are a fair few who can, a large number of NHS ‘General Managers’ (they like to call themselves Chief Executives these days) cannot really ‘manage’ – and certainly cannot manage the complex organisations containing conflicting power structures which are today’s large hospitals. And they never could. Why on earth we pay them so much money is beyond me. As a pretence/comfort blanket for Ministers to make them believe that these people can actually justify their salaries, just to to keep those ministers feeling comfortable in their beds at night? Which then begs the question as to why we should think that ‘Circle’ or people like them will be any better, ie whether they will be able to achieve one set of ‘targets’ (the financial ones) without falling down on all sorts of other ones. Crucial to this will be whether the contract has been set tight enough to ensure that there are close external monitors and appropriate (ie not ‘piddling’) financial penalties for failure. None of the other private management systems brought in by Labour were particularly good at this so heaven knows why we should expect this one to be.
@ Andrew Suffield
“I realise that not everybody understands how corporate investment works, but you could at least attempt to find out how this company operates before sounding off about it and getting all the facts wrong.”
Actually, I understand corporate finance very well, thanks. As you say, now for the facts.
1) You claimed Circle was ‘virtually a mutual, OWNED and run by healthcare professionals’. You now accept that they are less than half owned by them.
2) I never claimed Circle was ‘controlled’ by Circle Holdings, I said it was 51% owned by them. It is actually 50.1%.
3) You deny that Circle is profit driven – this is a misrepresentation. Companies owned by hedge funds are required to make a profit for their owners. As you say, this does not necessarily mean the company has to make a profit, they can make a profit from increased share value. As I said, the key driver for the company is the investor’s profit.
I do agree that I should have said ‘mainly’ owned by hedge funds rather than ‘entirely’.