Exclusive: Today, the NHS's biggest privatisation experiment ever comes to an expensive and embarrassing end – Circle Healthcare, which was chosen by the government three years ago to turn around the troubled Hinchingbrooke hospital in Cambridgeshire, is abandoning the project seven years early, leaving behind a deficit of between £7.7m and £12m. What's more, the taxpayer will have to make up the difference.
But Nick Boyle, business development manager at Circle, has told City A.M. that as soon as the hospital fell into Circle’s hands it was no longer placed on a “level playing field” with the rest of the NHS – a fact "ignored" by politicians.
“One of the key problems with the management and improvement of the health service is that it is so politicised,” he said.
“Politics just always gets in the way of everything, and especially near election time – politicians are scared of telling the truth.”
He said that on top of extremely high efficiency gains targets, which exceeded those of any other nearby hospitals, Circle faced more spending cuts than anyone else during its tenure: “In the last year, Circle's budget was cut by over 10 per cent, but the other two hospitals in the local area faced reductions of just three or four per cent.
“So on the one hand we were being hit by increasing demand, with more people attending A&E over the Christmas period, and on the other hand we were asked to do it for 10 per cent less money, and that was just not possible.”
Politics just always gets in the way of everything, and especially near election time – politicians are scared of telling the truth.
Circle’s withdrawal comes at a critical time for the NHS, with the debate over private sector involvement intensifying ahead of the general election
in May. Politicians averse to the idea will undoubtedly use Hinchingbrooke as a paradigm of failure, citing high transaction costs and fragmentation of services as reasons to avoid it, while those in favour will highlight the gains made despite the ultimate withdrawal.
The reality is, if the figures are scrutinised, Circle made a considerable saving for Hinchingbrooke, and therefore the taxpayer, over the three years it was in control. It is estimated that if the hospital had remained in public sector hands and continued on its downward trajectory, taxpayers would now be footing a bill in the region of £30m, rather than £10m.
“In terms of financial performance of the hospital, we actually did very well. By most measures, we saved in excess of £20m for the taxpayer,” says Boyle.
“People forget there have been increasing funding issues throughout the whole NHS, and over the last three years the average NHS hospital in this country has made two to three per cent productivity gains each year, at best. For Hinchingbrooke, we achieved five per cent gains.”
The contract to run Hinchingbrooke began in February 2012 (Source: Andy Parrett)
But although the hospital was benefiting financially, Circle was not. After just seven months in charge it had generated a deficit of £4m, and in January this year it was faced with a choice of either injecting £5m of its own money or walking away – this was the tipping point, and the moment at which Circle could legally exit the deal. Circle announced that the franchise was “no longer viable under the current terms of the contract”.
If the NHS is going to survive then it has to embrace innovation
With its shiny track record for transforming NHS services – it had already done an excellent job at NHS Trusts in Burton and Nottingham – it is surprising difficulties escalated so quickly in the case of Hinchingbrooke. But this was in many ways an experiment, and an important one at that – never before had the control of an entire NHS hospital been handed over to a private company.
So how did it go so wrong? Boyle believes Circle’s “co-operative model”, which gives doctors and nurses more autonomy over the running of the hospital, was something unusual for the NHS and incompatible with its deeply ingrained working style.
“The NHS has been increasingly burdened with bureaucracy, and that filters down to every part of the system,” said Boyle. “It's a great shame that politics plays such a great role in the NHS generally. we think if the NHS is going to survive then it has to embrace innovation. It has to find new ways of doing things, and needs to have a structure that allows organisations like Circle and others with novel ways of doing things to come in and learn from us. It needs to allow us to help and support the NHS.”
Fear of change
The fight against privatisation at the political level is stronger than any evidence supporting a case against it. Indeed, six or seven per cent of services are already tendered out to private companies and this has been consistent for many years – there is nothing to suggest the private sector is being allowed or encouraged to gradually come in and take full control.
What is comes down to, according to Matthew Custance, healthcare partner at KPMG, is such an intense bond with the NHS brand, there's a widespread fear of disrupting it.
“I think people feel very protective over the NHS because it’s a fantastic service and its very close to people, so they don’t like the idea of it changing from what it is – partly fear of change,” he says.
“Hinchingbrooke was a complex case, because on the one hand you could say it saved taxpayers at least £5m and it is therefore a good example of the private sector helping taxpayers.”
But not all patient experiences have reflected this ambition to help. Earlier this month, 74-year-old Nicholas White from Wales was given a £1,775 bill for treatment at the hospital, on the grounds he was Welsh and therefore “technically a foreigner”.
Hinchingbrooke was never done in the right way – Circle was asked to come in and work according to the same model and somehow make incredible efficiency savings
"It was very stressful," he told the press.
"I’ve worked for 40-plus years and always paid my taxes, so to be suddenly told that I was going to be charged for treatment on the NHS was shocking. I was infuriated."
The hospital defended itself, saying White was given the bill so that he could pass it on to his GP, and whether or not this was the intention, the case has done nothing to assuage people's fear of privatisation eventually leading to a paid-for service.
People are reluctant to allow experimentation within the NHS (Source: Getty)
A report by the Care Quality Commission also branded the hospital’s services as “inadequate” earlier this year, although the hospital disputed the accuracy of its report, saying it contained 300 errors.
Nonetheless, health secretary Jeremy Hunt said last week that the NHS Trust Development Authority (TDA) was working to resolve concerns raised in the report:
As for every provider of NHS services, the priority at Hinchingbrooke Health Care NHS Trust will continue to be the provision of safe, high-quality services to patients. To address the concerns raised by the Chief Inspector of Hospitals in the CQC report, the NHS Trust Development Authority has appointed an Improvement Director as part of the special measures regime now in place at Hinchingbrooke Health Care Trust.
But could the private sector ever have the power, or indeed the desire, to reduce quality and charge at point of service, all in order to generate more profits? Custance says this would never happen, as long as the NHS maintains overall control. He adds that he can't see how anyone would end up benefiting from such a situation.
“A paid-for service would just not happen because it's not in the interests of the private sector, because they are working for the NHS. They would have no incentive to start asking for payment – the issues of who pays for care and who offers it are very separate.”
The experiment goes on
The official handover will be overseen by the TDA. Stephen Webb, a member of the Hinchingbrooke team, says the fundamental ethos of the hospital hasn't, and won't change:
“I think there's a general feeling that having Circle on board certainly got more investment in, and overall there were a number of benefits. But the vision for the hospital is still very much what it has always been – it is a very well regarded hospital with a drive to improve.”
But despite its failure with Hinchingbrooke, the government has not been put off bringing private companies on board – only last month, NHS England listed a plan to outsource £5bn worth of work, which would involve advising new doctor-led clinical commissioning groups that spend more than two-thirds of the NHS budget buying care for patients. Companies in the running include Capita
Business Services, Mouchel and Optum.
The only thing changing in this case was the identity of the management, and that was the fundamental flaw – it wasn't going to work
But Custance believes major privatisation projects simply won't work until the differences are resolved – there is no point clashing the public and private sector together in the hope that one day they'll see eye-to-eye. What must be done first, he says, is to address the relationship.
“The problem is not whether an operator is private or public – when you want to transform how hospital services are delivered, a lot of effort is needed and the process is extreme. This means change is difficult within the NHS and it is slow for private companies to succeed when they start working for it,” he said.
“I don't think Hinchingbrooke was ever done in the right way – Circle was asked to come in and work according to the same model and somehow make incredible efficiency savings. The only thing changing in this case was the identity of the management, and that was the fundamental flaw – it wasn't going to work.”
A report recently published by the Public Accounts Committee highlighted the difficulty the two parties faced in collaborating – it described oversight of the contract as “poor and inadequate”, describing the franchise deal as an “innovative, but ultimately unsuccessful, experiment”. It said the Department of Health did not put sufficient controls in place to learn from this innovation, and that responsibility was “fragmented and dispersed across the system”.
What needs to change? Compromise, says Custance.
“At the moment, working with the NHS as a private company is hard, and the NHS needs to give them more room to experiment and change. On the other hand, private enterprises need to understand that they have to constantly demonstrate having the same ethos as the NHS and the same understanding of how the system works. It takes time, and compromise is necessary if you want to be part of the system."