The first privatised NHS hospital - success or smoke and mirrors?

The first privatised NHS hospital, Circle Hinchingbrooke, is lauded as 'partnership' future by influential figures - but financial instability, deeply unhappy staff, and poor care are highlighted in a new report - and in a damning letter from the regulator today.

John Lister
26 September 2014
smoke and mirrors.gif

Image: Smoke and mirrrors.

The carefully created public image of Circle, who took over the management of the first NHS hospital to be fully franchised to the private sector, Hinchingbrooke Hospital, is a triumph of PR spin.

Reference to the “success” at Hinchingbrooke has become shorthand for any politician or think tank advocating further NHS privatisation.

Services at Hinchingbrooke have been transformed, we are told. The results of the new patient satisfaction survey – the controversial “friends and family” question – is enthusiastically quoted, despite the test being heavily criticised by many including NHS England.

Behind the smoke and mirrors is a different story.

Hinchingbroke was a high performing, successful trust, before it was forced into deficit by the old East of England Strategic Health Authority, paving the way for Hinchingbrooke to be wholly franchised to the private sector.

The most recent staff satisfaction survey at Hinchingbrooke was disastrous. It revealed above average absenteeism, above average spending on agency staff, and failures to engage with or respond properly to staff, with staff placing Hinchingbrooke amongst the worst hospital to work for on many key measures.

There have been disputes between Hinchingbrooke and local commissioners. An attempt to lure additional referrals to Hinchingbrooke by offering to pay GPs a £50 per patient “administrative fee” for switching their patients away from other NHS hospitals had to be almost immediately withdrawn amid a storm of hostile publicity.

There has been no miracle. Under Circle’s management, the deficit at Hinchingbrooke rose sharply to £4.1m six months in to the contract.

The level of financial subsidy pumped into Hinchingbrooke’s balance sheets by Circle in “support payments” has risen again in 2014 to reach £4.85 million, just £150,000 short of the level after which Circle could either walk away from the contract for a further £3.2 million payment, or demand a renegotiation to agree the basis for a continuation of the franchise.

There are no contingency plans if they walk away.

Circle Hinchingbroke is now one of 19 seriously indebted trusts that in July 2014 have been referred by the Audit Commission to Jeremy Hunt for closer scrutiny.

Hinchingbrooke – before Circle

The seeds of Hinchinbroke’s financial malaise go back to the mid 2000s. Hinchingbrooke had previously provided services at below average cost and should have done well from the controversial new fixed tariff system, ‘Payment by Results’, introduced by the government. Instead the Strategic Health Authority stepped in, and imposed excessive penalty payments by the Trust to the Department of Health, totalling a staggering £25.6 million over two years.

Meanwhile the Trust also saw its actual contracts with the Primary Care Trust whittled away, as the PCT attempted to reduce their referrals to the Trust to match the previous budget.

The local primary care trust said it was their policy to scale down the use of hospital treatment. In 2007 UNISON warned of the scale of the PCT’s planned disinvestment:

“Cambridgeshire PCT’s plan involves diverting almost 42,000 patients (25%) away from treatment at Hinchingbrooke – 4,900 elective in-patients, 3,500 non-elective in-patients and over 35,000 outpatients. The essence of the PCT proposal is not “reinvestment” in alternative services in the community and primary care, but disinvestment from hospital care, and cost cutting to balance the PCT’s books – at the expense of Hinchingbrooke. The plan would cut hospital services by over £10m – but invest just a quarter of that in alternative provision.”

The PCT also planned to squander £2.3 million on purchasing elective care from private sector providers – the nearest of which is 20 miles from Huntingdon.

Hinchingbroke’s financial plight meant they were obliged to seek funding for even such a modest investment through the Private Finance Initiative, which remains a liability for years to come.

This decline in income and overhang of debt was convenient for the notoriously ideologically pro-market East of England Strategic Health Authority, which was already leading the charge towards privatisation of clinical services. It opened the way for discussion of different management options, and eventually the experimental franchise with Circle.

Evidence-free policy

After the franchise, as the financial performance and patient satisfaction ratings of the hospital took a sharp turn for the worse, the National Audit Office published a report on The Franchising of Hinchingbrooke Health Care Trust in November 2012. 

The NAO report was critical of the lack of scrutiny of the final contract by the East of England Strategic Health Authority. It noted that the Circle contract was based on:

“assumptions that were not directly informed by previous experience”

But the NAO did not get fully to grips with the Hinchingbrooke affair – most notably the Strategic Health Authority decisions which financially destabilised Hinchingbrooke Healthcare Trust, even as it developed the franchising model to ‘rescue’ it.

The SHA’s policies were driven by ideology, and a commitment to competition and developing a market in health care in place of NHS planning. Their Director of Policy and Strategy, Dr Stephen Dunn, was fêted by the private sector and awarded prizes by Healthinvestor magazine in 2011, months before the franchise contract was even finalised.

Far from being a blueprint of how to run other NHS Trusts, the Hinchingbrooke model is a failed one-off experiment. Hoped-for franchises for Circle to run George Eliot Hospital in Nuneaton and Weston Super Mare’s general hospital have fallen through.

But remarkably, Care Quality Commission boss David Prior and Kings Fund boss Chris Ham have both vaunted the Circle model as the future, a future of ‘franchising’ and ‘partnerships’.

What kind of “partnership”?

We are repeatedly told by uncritical reporters that Circle is a “partnership,” a John Lewis-style organisation in which staff are empowered and therefore work more effectively: we are even told it might be a model for transforming NHS trusts into “mutuals” or social enterprises. But the evidence for any of this is vanishingly thin. The very notion of “partnership” was only ever partially true, and now, with the “acquisition” of the Virgin Islands-registered Circle Partnership by the hedge-fund and city-owned Jersey-based Circle Holdings, it’s not true at all.

An undefined number of Hinchingbrooke employees will now apparently be issued with an undefined number of shares in Circle Holdings, on an unclear and apparently arbitrary basis – possibly as part of an individual appraisal process. They had no say over this change of regime. They were not in charge before – and they are even less in charge now. (For more detail on the worthless ‘share’ options and how the ‘partnership’ became even less of a ‘partnership’, see the full report, commissioned by Unison Eastern Region).

Prior to Circle’s takeover, of course, NHS staff at Hinchingbrooke were all part of a public service, and therefore also “owners” of the service. As providers, owners and users of health services, they had a genuine stake in securing its future. However that has been lost: now – through no fault or decision of their own – they have become exploited, and often bullied, employees of a profit-seeking private company.

Circle’s managers at Hinchingbrooke now refuse even to meet with the accredited organisations representing staff in the hospital – the unions and the Royal College of Nursing. Time after time long-awaited scheduled meetings are simply cancelled, preventing any serious dialogue with the staff at the sharp end of delivering services.

One reason for this reluctance at a time of mounting concern over nurse staffing levels might be the findings of a May 2014 survey by the Royal College of Nursing, which found one ward in Hinchingbrooke in which just one nurse was expected to care for 21 patients.

Desperately seeking savings

Circle’s contract at Hinchingbrooke was based from the beginning on the assumption of achieving massive year-on-year cost savings, at a much higher level than achieved in Trusts anywhere in the NHS, as the NAO report made clear.

Their business centred on achieving an enormous total of £311m in “savings” over ten years – from Hinchingbrooke’s £107m budget.

The National Audit Office described this target as “unprecedented” as a share of income.

They commented:

“Circle’s bid did not fully specify how it would achieve these savings.”

During the summer of 2012 the company itself was propped up by raising another £47m from its astonishingly patient but as yet unrewarded investors.

It soon became clear that costs at Hinchingbrooke could only be cut on the scale Circle had promised - and returns to investors delivered - by cutting jobs. By August the Royal College of Nursing began complaining over planned cuts in nursing posts. 46 nursing and health care assistant jobs were to be cut, some of them through reducing hand-over times between shifts, raising concerns over the quality and continuity of care.

A Health Service Journal report in November noted that:

“the private franchise operator had anticipated cutting its then 1,600 workforce by around 320 whole time equivalents, although this information was redacted in the publicly available paper.” (HSJ November 8:13)

The following month Circle renegotiated the hospital cleaning contract with Mitie cutting 24 cleaning jobs. This type of job loss got neatly around limits to Circle’s freedom of action at Hinchingbrooke, which still allows them to get staff to go voluntarily, terminate short term contracts, or reduce numbers of temporary staff – and to get sub-contractors to make redundancies which they could not do themselves.

Performance problems

It’s clear from even the minimal amount of detail in the infrequent published papers from the scaled-down Board, that all is not going too well.

One of the most severe problems according to the most recent Board papers (May 2014) has been in staffing Critical Care beds, with shortages of registered nurses and even more shortages of Health Care Assistants: less than half the required number of HCA shifts were covered. The staffing budget of £65m last year included £7.8m (12%) on “interim staffing” – locums, bank staff and agency staff: “the most expensive staffing resource”. Hinchingbrooke’s proportionate spend on agency staff is almost double the average for Foundation Trusts.

The main attention on staffing levels is on working towards a “better balance of registered to unregistered nurses” (by which Circle means reducing the proportion of registered nurses.

Staff get no satisfaction

At Hinchingbrooke, just 27% of staff feel that are were enough staff for them to do their job properly, according to the Trust’s own 2014 Workforce Strategy, Despite all the claims for Circle’s innovative style of management, just 52% of staff would recommend Hinchingbrooke as a place to work, and only 45% felt satisfied with the recognition of their good work – both well below the level of the best NHS trusts. This might help explain the very high staff turnover rate, which – at 12.6% – is almost 50% higher than the NHS average and much higher than the East of England average.

The most recent NHS Staff Satisfaction Survey shows the extent to which Circle’s much-vaunted “partnership” approach has proved to be an empty boast.

Out of 28 Key Findings, Hinchingbrooke comes out worse than the NHS average on two thirds (19), and is in the lowest 20% of trusts in almost half (13). Among the poorest performances, Hinchingbrooke came out in the bottom 20% for staff feeling that their role makes a difference to patients, for [lack of] effective team working, and the percentage of staff working extra hours – a result that is worse than last year. On training, development and management support to fulfil their potential, Hinchingbrooke was in the bottom 20% on all four key findings. The trust is also in the bottom 20% for equality and diversity training, and above average for staff facing discrimination at work.

It was among the worst trusts for the percentage of staff witnessing potentially harmful errors, near misses or incidents – but also in the worst 20% for staff concerns over the fairness and effectiveness of incident reporting procedures. Hinchingbrooke staff are among the 20% of NHS trust staff most likely to have experienced bullying or abuse from staff [fellow “partners”!]. 29% reported that they had experienced bullying and harassment from staff. They are also among the 20% most likely to feel under pressure to come into work when they feel unwell, with a third of Hinchingbrooke staff saying this had been a problem for them.

The management regime in Hinchingbrooke under Circle has (perhaps half-jokingly) been compared by some staff to North Korea, where the PR spin is undoubtedly less sophisticated. This might be an unfair exaggeration, but the findings from the staff survey show that for hospital staff, it’s a very long way from being the jolly, cosy, egalitarian “partnership” it appears to be in the Circle PR handouts.

The Trust’s response to the Survey findings stated:

“Our doctors, nurses and staff are our best asset – ensuring they feel engaged and able to deliver the best quality patient care is our top priority. We’ve made some big changes in the last year to make our leadership more visible, to support staff and to empower them to improve services, and results are beginning to show.”

Yet all of the staff satisfaction issues on which the Trust is in the bottom 20% have shown either no change or a deterioration since the previous survey.

Who’s really behind the “partnership”?

The company which owns the majority of Circle Health was successfully floated on the stock market in mid-June 2011. The company, then valued at £95.4m, was the brainchild of a former Goldman Sachs senior executive Ali Parsadoust (known as Ali Parsa). The company was 49.9% owned by a “social enterprise”, Circle Partnership Ltd, registered in the tax haven of the British Virgin Islands. It was the part of Circle proudly boasted to be a “John Lewis style” company, “owned” by Circle’s clinicians, employees and other “partners”.

The consultants were a key factor in the revenue stream for the company:

“Circle’s independent business strategy depends on Circle Consultants agreeing (as they have done in CircleBath) to transfer specified percentages of their existing practices to Circle’s new hospitals … in exchange for … an ownership interest in Circle Partnership.”

(Admission Document, p10)

But the Admission Document admitted that the power to take decisions was entirely concentrated in the hands of the majority owner, the for-profit company, Circle Holdings (registered in another tax haven, Jersey), which has always been an investment vehicle for a number of high-powered private equity firms and hedge funds.

As of January 2014 the overwhelming majority (86.7%) of the shares in this company were owned by just five major shareholders:

Lansdowne Partners – 29.2%
Invesco Perpetual – 28.7%
Odey Asset Management – 14.8%
Balderton Capital – 9.0%
BlueCrest Capital Management 5.00%

Lansdowne Partners made a £12million killing by exploiting the collapse of Barclays shares in 2009, netting a handsome profit for the financiers’ investors. It’s co-founder Sir Paul Ruddock and cofinancier David Craigen have between them donated more than £750,000 to the Tories.

Odey Asset Management is a hedge fund managing $11.6 billion, run by Crispin Odey, who made a fortune from betting on the financial crisis, particularly the Irish bank bailout and from short-selling British banks in 2008. Odey then awarded himself a bonus of almost £28m after his investments came right for his clients, boosting his £300m personal wealth. He is a substantial donor to the Conservative Party.

Balderton Capital is a $2bn (£1.3bn) venture capital firm with partners drawn from Goldman Sachs and Bain Capital – the investment vehicle of failed Republican presidential candidate Mitt Romney. Balderton’s portfolio includes Wonga.com, the ultra-high interest lenders of “pay day loans” with rates of 3,000% or more for money borrowed online.

BlueCrest Capital Management LLP, based in Guernsey, is Europe’s third largest hedge fund. Michael Platt, Bluecrest’s boss, has given £125,000 to the Conservative Party

Invesco Perpetual was set up by Sir Martyn Arbib, who has donated £466,330 to the Tories.

The question is with such enormous and generally successful companies holding the vast majority of shares in Circle, are they using the company and its continued losses as a way of reducing their tax liability, or are they growing more and more impatient for the long-promised profits to materialise?

Finances – the case of the missing profits

Circle constantly presents an optimistic view on its financial situation, but the company is ever more reliant on public sector funding to keep it afloat.

circle pic.jpg

Circle and its subsidiaries are in fact carrying debts at high interest, losing money, breaching their financial covenants, and are dogged by a wide range of financial problems.

By the time of the NAO report into Hinchingbrooke, Circle was expecting to miss its £9.9m savings target by almost a quarter, generating no more than £7.5m savings in 2012-13, and without new plans to cover this shortfall.

Less than a month after the report, Circle’s founder, front man and chief executive Ali Parsa stepped down unexpectedly as Chief Executive, prompting some to speculate Circle might soon walk away from the contract, leaving chaos in their wake.

But such has been the squeeze on the local NHS that one of Circle’s extravagent, bjiou private hospitals, CircleBath, now claims to command a 40 percent share of the local “market” for elective orthopaedic operations (hips, knees and ankles).

Both of Circle’s private hospitals (in Bath and Reading) are entirely dependent on generous contracts from the NHS to keep them afloat. A massive 93% of the private company’s caseload comes from the NHS. NHS volumes for the first half of 2014 were up by 52% at Circle’s Bath hospital, and a colossal 235% in Reading, where NHS patients now account for 45% of total revenue.

The company is now actively seeking additional NHS contracts across the country. A Circle-led consortium won the £160m five year contract to deliver Musculoskeletal (MSK) services in Bedfordshire.

However Circle’s more ambitious link-up with Capita for the biggest prize so far, the £800m contract for Older Peoples services in Cambridgeshire and Peterborough was unsuccessful. The consortium was shortlisted by the Clinical Commissioning Group, but pulled out of the tendering process.Unofficial sources “close to Capita” have said that the contract was under-priced, and that Capita calculated the contract could result in losses of £30-£50 million per year.

Both of these bids indicate that Circle does not feel constrained from bidding for work by its lack of local knowledge or appropriate expertise – and that CCGs determined to outsource pathways of care appear unwilling to take either factor into account.

Circle has spotted this chance to cash in on more NHS contracts. The Chairman’s letter of December 20 points encouragingly to the fact that £5 billion worth of contracts were already being tendered by CCGs, with many more expected to be opened up to “any qualified provider” as a result of the Health & Social Care Act 2012 – giving Circle more hope that profits might be made from the NHS in the near future.

If the company ever does generate a profit from its extensive NHS contracts, we can be sure that none of that extra money will flow back to the Treasury in taxation: the company is feeding off the public sector but – no doubt to the delight of its hedge fund sponsors, it is running its affairs to ensure that Circle Holdings does not contribute to public budgets.


Circle’s PR staff may be masters of the art of illusion, but behind the smoke and mirrors we have a company that makes no profits and exists only through the patronage of the NHS and public funds, that presents itself as a partnership but is among the worst in the country for bullying and exploiting its own staff.

The Circle management principles seem fine enough on paper, but mean little to staff working short-handed and lacking additional training and support. The company’s management regime may not be on the level of the North Korean despotism, but it is no workers’ paradise.

The rise and prominence of Circle reflects the determination of successive governments to hand over more NHS contracts to private providers at the expense of existing NHS trusts, a policy eagerly applied by the East of England Strategic Health Authority. But the public image of Circle also reflects a weak, uncritical news media that has been willing time and again to simply rehash PR spin and press releases from Circle without making any real attempt to look behind the smoke and mirrors.

The British public deserves better.

This is an edited version of the report for by John Lister of Health Emergency. The full report is available here.

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