Circle Healthcare and Hinchingbrooke – the Post-Mortem Begins

Let’s come back to Circle Healthcare and Hinchingbrooke Hospital. Circle are pulling out of the ten-year contract to run what was a “failing” NHS hospital just two years in, as their losses approach the £5 million mark, at which point the contract allows them to withdraw. We’re not against private provision of services, even running hospitals, from a political or philosophical viewpoint. But in any contractual situation, things have to work, for all stakeholders; the buyer (ultimately the taxpayer), the provider, and the users of the service. Clearly that did not happen here.

In December 2012, we published this article, asking how Circle had got through the financial qualification process in 2009/10, to even be considered for the contract, let alone win it. They were loss making with a weak balance sheet. Maybe there was a business decision about risk, or maybe there was “corruption” in the process - not necessarily in the money changing hands sense, but in the political pressure for an apparently exciting and innovative firm, backed by top business people, to win the contract. Given what has happened, it would be good to see National Audit Office looking into this and going right back to that original decision. It is worthy pointing out however that the decision to outsource was made by the Labour government, and in fact the competition was at short list stage when the coalition government came into power.

A few months before that, we wrote this about the claim from the then CEO (and founder), that Circle had found savings of £1.6 million “by ordering the hospital’s paper supplies differently”. As we pointed out, this just did not seem feasible. The firm failed to respond to our questions, and then changed their claim to “identifying” £1.6m savings – and not just on paper. That was a real classic in terms of savings nonsense, and did not give us a good feeling generally about the Circle approach, or the CEO.

There are some interesting questions to ask about the contract as well. Was it acceptable that Circle could walk away if their losses hit a certain point? Would a better- capitalised, more financial stable firm have been able to keep going? Certainly some large IT firms have lost a lot more on some government contracts and persevered. Then there is the question of whether the contract was fair from a provider point of view, or whether Circle were naive in taking on a loss making hospital and believing they could turn it round. Their hands were tied too in that all staff Ts and Cs had to be preserved – did they ever stand a chance of really making the efficiencies that were necessary, given Hinchingbrooke was losing over £5 million a year previously?

And if Circle are claiming that the additional workload in A&E was what tipped them over the edge, shouldn't the contractual payment mechanisms have reflected that extra work in some way? Why didn't Circle insist on that in the contract – was that naivety again on their part? As we said yesterday, these are issues that are facing every hospital though, which is why many Trusts are struggling financially too.

Then there are issues around what went wrong in terms of performance. For the first year or so, Circle appeared to be performing well, moving in the right direction, but things have obviously gone downhill. The Care Quality Commission also issued their report last week which gave Circle am “inadequate” rating, which is dreadful.

So, a questionable supplier selection decision, management exaggerating savings, a poor contract for both buyer and supplier, and something going wrong in terms of performance and performance management. Plenty to consider there.

And finally, I loved this comment made by a reader of a Spectator article on this topic. “FF42” obviously knows his or her stuff.

“It's impossible to view this as a positive. Either a private provider can't make outsourcing work or they are taking advantage of a one-way bet: pocket the money in good times; walk away in the bad.

As someone who has been involved in outsourcing on both sides of the fence for years, I have three golden rules for success, all of which seem to have been broken in this case:

- Don't outsource your problems. If you can't make it work, the outsourcer lacking your direct control, resources or even interest, certainly won't.

- Keep it simple. Hip operations with a standard process and inputs and outputs that can be easily measured seem like a good a candidate; a complicated hospital that involves keeping different interests happy and making trade-offs that are not well understood is not.

- Be totally clear about what you want. Outsourcers will do what's in the contract - nothing more; nothing less. They won't do anything more and you will have to manage them to ensure they do nothing less”.

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Voices (2)

  1. Stephen Heard:

    I was involved in this process and you have to go back to the very beginning to make sense of the present. Who was it who said that to understand the future you have to have an appreciation of history? Anyway back to the here and now problem.

    Hinchingbrooke was always a political football with planning for this commencing during the local MP’s tenure as PM (the hospital is in John Major’s constituency and it was opened in 1983; he was PM from 1990 to 1997). I doubt whether there was any true due diligence on the need to site a new hospital between two existing large Acute NHS Foundation Trusts at Peterborough and Cambridge. So there is a need for the NAO to investigate the real need.

    Huntingdon and the local burghers, which includes the local GP’s, have never got over the fact that they lost their county shire status in 1974 and became a non-metropolitan district of Cambridgeshire. The fact that they could have their own “county” hospital at Hinchingbrooke was a real consideration in their attempt to operate as a quasi county.

    However Hinchingbrooke has always struggled to operate as a General District hospital and to recruit clinical staff with such powerful Foundation Trust neighbours. In fact most of the specialist clinical consultants were historically employed by Addenbrookes and seconded or leant to Hinchingbrooke as senior clinicians prefer to have this on their professional accreditation. In fact at one stage in the early days of Circle’s tenure Addenbrookes did threaten to withdraw “their” clinical staff in order to derail the franchise.

    My involvement was as part of the then commissioners Cambridgeshire Primary Care Trust (PCT and before the Clinical Commissioning Groups). We were asked to conduct a “beauty parade” of the potential new providers to ascertain who we thought, as commissioners, we could work with in the future. From memory we saw about five potential providers including Serco and Addenbrookes as well as Circle. I can’t recollect who the others were and Addenbrookes withdrew shortly after as their Business Development Director left to run the West Suffolk hospital. He has now moved onto to be Chief Executive of Peterborough.

    The procurement competition itself was being managed by the then new Strategic Project Team (SPT) who was working for the then East of England Strategic Health Authority (SHA and now defunct being replaced by the NHS England Area team). The SRO sponsor at the SHA is now the Chief Executive of the West Suffolk.

    Anyway it was obvious to me, as someone who had just joined the NHS from OGC Buying Solutions that the SPT were out of its depth. I would suggest that any subsequent NAO investigation needs to look at the role of this dysfunctional team and the decision process in deciding which procurement route to take and the governance around this decision.

    I had, as the commissioner during my time at the PCT, lots of concerns about Hinchingbrooke and their performance and we were quite pleased when the PCT started the procurement however we, as local commissioners, always saw Addenbrookes as favourites. Their business case to close the A&E and use the site as an elective (planned operations) factory would see the main Addenbrookes site released for emergency non electives and as a centre of excellence for tierty services along with their world class clinical research. As it was local ambulances on out of hours “blue light” emergency calls were by passing Hinchingbrooke and driving straight to either of the two local Foundation Trusts as there was no senior clinical coverage at the emergency department at Hinchingbrooke.

    However local GP’s, who were also involved in the beauty parade, were keen to gain control of their local hospital and the carrot of a John Lewis type share options for staff including local GP’s was I believe a big part to play in the award decision. It is somewhat ironic that the Local Commissioning Group of GP’s in Huntingdon are now the commissioners of Hinchingbrooke and I wonder what their view, rather than the parent Cambridgeshire and Peterborough Clinical Commissioning Group, is of Circle’s withdrawal!

  2. Bob Beveridge:

    Circle has fallen foul of the same pressures facing all acute hospitals. They are at the end of the value chain and have an obligation to treat patients. The CCG’s are reducing funding for hospitals in favour of schema to try and manage demand but in most regions are having no tangible impact. So patient volumes keep rising. And across the country the marginal tariff which applies to patients who come to A&E but have to be admitted is hitting all Trusts very hard as there are an increasing number of patient admissions where you lose money. The NHS system is broken for the moment; at Half year 81% of acute trusts are in deficit /loss making. This percentage will be higher by year end. Circle wre innovative but yes also naive.

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