Hodge and PAC pass judgement on Circle and Hinchingbrooke

The Public Accounts Committee (PAC) has today (18 March) published its 46th Report of Session 2014-15 – an examination of Hinchingbrooke Health Care NHS Trust and the operational control of Circle, the first private company to run an NHS hospital.

The Rt Hon Margaret Hodge MP, chair of the Public Accounts Committee, said:

“Circle became the first private company to run an NHS hospital when it took operational control of Hinchingbrooke Health Care NHS Trust in February 2012. However, in January 2015, Circle announced that it intended to withdraw from the contract, just three years into the 10-year franchise.

“Whilst this was an innovative – but ultimately unsuccessful – experiment, we are concerned that none of those involved in the decisions has been properly held to account.

“Despite our warnings about the risks, oversight of the contract by the various parties who had a role was poor and inadequate and no one has been held accountable for the consequences.

“As we warned in 2013, the taxpayer has been left exposed by the failure of the Hinchingbrooke franchise. Circle was not able to make the Trust sustainable and the NHS Trust Development Authority did not take effective action to protect the taxpayer.

“It was clear at the time the franchise was let that the Trust would only survive if it secured substantial savings, but the savings projected in Circle’s bid were overly optimistic and unachievable.

“The Department later told us that it was confident of success and played down the high degree of risk involved in this novel contract.

“However, the total deficit incurred during the franchise will be well above the level that Circle is contractually committed to cover, leaving the taxpayer to pick up the rest of the bill.

“We want to know the total cost to the taxpayer due to the failure of the franchise, including the costs of transition arrangements and the total cost of covering the financial deficits incurred during the franchise.

“The Care Quality Commission inspected the Trust in September 2014 and gave the Trust an overall rating of ‘inadequate’. The Trust and Circle have challenged the Commission’s assessment, although Circle has acknowledged that Hinchingbrooke did have areas to improve.

“We were not given a satisfactory explanation as to why the inspection rating was inconsistent with previous assessments of care quality at Hinchingbrooke. The contradictory assessments risk confusing commissioners, the public and others about the actual quality of care being provided.

“We are also concerned that lessons on awarding and managing major contracts will not be learnt from this venture. The Department told us that no trusts are currently considering an operating franchise model, but the NHS continues to award major, high-value contracts.

“Public bodies will not achieve value for money from their contracts until they become more commercially skilled – both in letting contracts in the first place, but also in ongoing contract management.”

Evidence was provided to the PAC by Hisham Abdel-Rahman, chief executive, Hinchingbrooke Hospital; David Behan, chief executive, Care Quality Commission; Maureen Donnelly, chair, Cambridgeshire and Peterborough Care Commissioning Group; Richard Douglas, director general for finance and the NHS, Department of Health; David Flory, chief executive, NHS Trust Development Authority; and Steve Melton, chief executive, Circle Holdings.

The conclusions and recommendations made the PAC can be viewed on the Committee’s webpage.



Comment Provided by: Andrew Vincent, Partner, Academyst LLP

The story raises very important points and leaves out just as many unanswered questions.

The premise behind the contracting out of NHS provider services to commercial players is not only about encouragement of commercial players. In an NHS with almost zero spare cash, failing Trusts can be saved by allowing commercial players raising money from the city to take over and reform organisations. Unless the NHS can identify additional funding that doesn’t currently exist, it needs commercial sector involvement and their funds to prevent further system decline.

However, and to me this is the biggest unexplored area, why would a commercial organisation be willing to accept high levels of financial liability if the system was not prepared to allow them to make a return at some point? Circle pulled out because it became apparent that the system would NEVER allow them to extract a return.

Circle were successful at improving financial performance. This is not at debate. Furthermore, compared to what they inherited, they had created significant improvements in:

  • target attainment
  • quality & safety
  • patient experience
  • staff survey
  • financial performance

Very few other Trusts have created concurrent improvement in these domains and many have created large scale destruction e.g. Barts Health.

Circle brought Hinchingbrooke to within a £1 million of making a surplus (profit) but each time it came close, it had its tariff structure and savings targets adjust, making attainment of surplus impossible. Why would a commercial player continue to operate under these conditions, with no hope of an ROI?

I believe the NHS did not consider how it would rationalise the multiple dimensions of wanting to encourage (and benefit from) commercial sector involvement, wanting to reduce funding to all providers and the requirement by commercial providers to at least have the possibility of making a return. The commercial sector wants a fixed set of contract terms so it can plan. The NHS would rather have an open-ended and flexible set of terms so it can do what it likes. These two different modus operandi do not have a middle ground!



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