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Circle has been unable to make a profit. How will it turn around a hospital?

Key questions for Circle Health, the private firm taking over a Cambridgeshire NHS trust

Today it was announced that Circle Health will take over the running of Hinchingbrooke Healthcare Trust. There are a lot of questions that need to be answered.

The first thing to note is that this is not the privatisation of the hospital; it is the privatisation of the management. Circle will not own the hospital. It is reported that the staff will be employed on NHS terms and conditions, so on the surface this is better than if the hospital were to become a social enterprise where NHS terms are replaced. The new management will, of course, be able to fire staff.

Hinchingbrooke is a small trust. It has 254 beds and 1,700 staff, and covers a population of just 165,000. Its annual turnover is about £92m, yet it has a debt of £40m. When the East of England put the management of Hinchingbrooke out to tender in 2009 several local NHS trusts initially showed an interest, but they withdrew early when it became clear that they would have to take on the debts.

It took a year before Circle was named preferred provider – and the contract was expected to be signed last June. It has since taken another five months for the Treasury to sign off the deal, so clearly they were reluctant. The current management have a cost improvement plan of 6.6%, that is, the hospital has to get almost 7% more efficient every year: this is the task that Circle have agreed to take on.

However, Circle have no experience in running an entire NHS hospital. They have run their own small private hospital and they have run Independent Sector Treatment Centres (currently only the Nottingham Treatment Centre). In spite of this, Circle has not been able to make a profit. According to the Bureau of Investigative Journalism, the latest published annual accounts from Circle show that it has a turnover of £63m on which it makes a loss of £27.4m.

More recent half yearly accounts reported by HealthInvestor show that Circle made an operating loss of £10.1m for the first half of 2011, which is less than the previous year, but shows that Circle is still unable to make a profit. This raises the question of how can a company that cannot break even be expected to turn around an NHS hospital?

Circle’s business so far has been in the lucrative “boutique” end of private healthcare with the small designer hospital in Bath (just 28 beds), clinics in Stratford and Windsor, and taking preferential rates from the NHS for its ISTCs. It is unlikely that local Clinical Commissioning Groups will pay Hinchingbrooke more than the national tariff (although there is an option in the Health and Social Care Bill to do this). This means that money will be tight.

The elective care that that Circle has provided in its private operations and ISTCs are very different to Hinchingbrooke, which has to cover much larger volumes of patients and, significantly, has to cover emergency care through its A&E department. Further, although the Department of Health says that the trust will remain in the NHS, it has not said what will happen to the 30-year PFI Hinchingbrooke Treatment Centre (24 beds, operated by Kier Project Investment) – and Circle has not said what will happen to Mulberry Private Healthcare, operated by the trust.

A final issue is how Hinchingbrooke will work as a Foundation Trust. FT governors appoint non-executive directors including the chair of the board. In other FTs, governors hold the board to account and can replace the chief executive. Does this contract mean that when Hinchingbrooke becomes an Foundation Trust the governors will not have this power?

See also: Lansley’s plans increase the risk of a Southern Cross-style crisis in the NHS

Richard Blogger writes about the NHS and social policy at NHS Vault.

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