The boss of the first private company to run an NHS hospital has promised to pay off £40m of public debt, prompting unions to warn that this will “hit patients and staff as drastic cuts will have to be made to health services and jobs”.
Speaking to the Guardian, Ali Parsa, the chief executive of Circle Healthcare, said the 10-year deal to run Hinchingbrooke hospital meant his company aimed to make at least £60m in profits from £1bn in NHS revenues.
“We are about saving a local hospital that was threatened with closure. It was on course to lose £230m over the next 10 years,” he said.
While the company claims it will improve standards, to make money unions say it will need to implement what have been described as eyewatering cuts.
Asked whether he would slash services to make cash, he said: “We have to meet all sorts of outcomes in waiting times, A&E. We would not be able to do this if we cut. That’s not what we have done in other hospitals.”
Although Parsa said he was committed to clearing the debt, he admitted he was not contracted to do so. He compared failing NHS hospitals to struggling football teams, saying that the Bank of England governor, Mervyn King, had talked approvingly of football clubs being saved. “Why can we not save failing hospitals in the NHS?”
In a deal signed off by the government in February, Circle takes the first £2m of any year’s profits at the hospital in Huntingdon, Cambridgeshire. After that it gets a quarter of surpluses between £2m and £6m, and a third of surpluses between £6m and £10m. The terms mean that in any year Hinchingbrooke makes less than a £6m surplus, more than half will go to Circle.
In the past decade the hospital has never made an annual surplus of more than £600,000, suggesting large cuts would be needed to meet targets. This year the hospital is on course to lose £10m.
Circle’s 10-year management franchise is seen as a potential model for other hospitals.
The Health Service Journal, which uncovered details of the deal, calculated the trust would need surpluses of at least £70m over the next decade to pay off its £40m debts.
Unions called the deal disgraceful. Christina McAnea, Unison’s head of health, said: “Circle and the government promised that a profit would not be made until Hinchingbrooke’s debts had been paid off. It clearly had no intention of keeping this promise, having laid down plans to cream off nearly 50% of the hospital’s surpluses – making it virtually impossible to balance the books.
“This is a disgrace. Any surpluses should be going directly into improving patient care or paying off the hospital’s debt, securing its future for local people – not ploughed into making company profits.”
The shadow health secretary, Andy Burnham, said he was concerned the plan “simply cannot be safely delivered”.
“Taking a massive £70m out of a small and fragile acute hospital is akin to asking the impossible,” he said. “Circle has a financial incentive to make eyewatering efficiencies and the onus is on ministers to ensure this doesn’t compromise the quality and safety of patient care.”
The government had always claimed that if Circle kept its promises and met targets “the whole of the trust’s accumulated deficit will be repaid by the end of the 10-year contract”.
In February the health minister Simon Burns told parliament: “Circle is paid from the trust’s surpluses, so if there are no surpluses, Circle does not receive a fee. Furthermore, if the trust makes a deficit under Circle’s watch, Circle must fund the first £5m.”
A spokeswoman for the Department of Health said that had the deal not been agreed Hinchingbrooke hospital may have had to close.
“Any fee that Circle receives isn’t all profit – Circle must meet the ongoing cost of delivering the deal and indeed any costs they incurred in bidding for the contract.
“This process, which was started under the previous government, will deliver improved patient care and will put the hospital on a sustainable financial footing for the future.”
Experts said there would be “profit leakage” from the NHS. “From a wider NHS perspective, public to private partnerships will inevitably lead to a changing landscape,” says Jason Zemmel, head of healthcare at law firm CMS Cameron McKenna. “The provision of services in NHS hospitals is already substantially outsourced to private providers and there is profit leakage away from NHS trusts.”
Circle is a loss-making healthcare company listed on the stock market, with City analysts forecasting a loss of £30m this year.
Trade magazine Health Investor had also reported that its flagship Nottingham treatment centre, which accounts for a major portion of its revenue, is to be retendered.
In its own share listing documents, Circle warned that the loss of Nottingham would have an “especially adverse effect on Circle’s business, results of operations, financial condition and future prospects and consequently those of the company”.
Currently Circle’s only NHS treatment centre, the Nottingham centre accounts for £25m of its £41m group revenue in the first half of 2011.
However, Circle stands a good chance of securing Nottingham as the contracting strategic health authority – NHS East of England – are also the same body that handed out the contract for Hinchingbrooke hospital, on the basis of its performance at the Midlands centre.
The company has also been backed by Monitor, the economic regulator. Officials chided Burton hospitals NHS foundation trust after it had failed to properly weigh up the risks involved in buying back an independent sector treatment centre – despite warnings from the previous operator, Circle.
Monitor found that the acquisition of the treatment centre, bought for £2.5m from Circle in July 2011, had “left the trust exposed to unmitigated financial challenges”.
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