The deal struck between Hinchingbrooke Health Care Trust and its private sector operator means the trust needs surpluses of at least £70m over the next decade to pay off its £40m debts.
Figures uncovered and analysed by HSJ reveal the scale of the returns needed by Circle to meet its plans to clear the financially challenged £100m-turnover hospital’s debts.
The firm took over Hinchingbrooke in February, making it the first NHS district general hospital managed by the private sector. On signing the deal, health minister Simon Burns told Parliament: “If Circle achieves its forecasts, the whole of the trust’s accumulated deficit will be repaid by the end of the 10-year contract.
“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.”
Minimum surpluses Hinchingbrooke will need to make over the next decade to clear its £40m debts
Share of those surpluses that Circle would get
Mr Burns did not reveal the firm’s share of any surpluses. However, a letter from health minister Lord Howe to Lord Haskel found by HSJ in the House of Commons library explains that the first £2m of any year’s surplus goes to Circle. The company takes a quarter of surpluses between £2m and £6m, and a third of surpluses between £6m and £10m.
- Use our dynamic table to model how surpluses at Hinchingbrooke Health Care Trust might be shared with Circle
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, Hinchingbrooke has never recorded a surplus above £600,000. The terms also mean the minimum surplus Hinchingbrooke needs to clear its debts over the next decade is £70m.
That would be possible only if the trust recorded £10m surpluses for seven of the 10 years. If surpluses are spread more evenly over the contract term they would need to be higher overall, because a larger proportion would go to Circle.
Hospital turnaround specialists described the target as “very challenging”. Bill Upton, head of healthcare at Grant Thornton, said: “It’s going to be extremely difficult, given all the pressure on trusts in terms of [reductions to the] tariff and things like that.”
But Circle chief executive Ali Parsa said Hinchingbrooke’s performance and efficiency had already seen big improvements since the firm took over. “If I had told you that the number of serious incidents at the hospital would drop 73 per cent within three months you would have thought I was smoking pot, right?” he told HSJ.
Circle says Hinchingbrooke has gone from being the worst performer in Cambridgeshire on accident and emergency waiting times to being the best, reduced average length of stay for hip and knee patients by 2.1 days, and identified purchasing savings of £1.5m.
Mr Parsa said Hinchingbrooke had needed £4m “one-off payments” to break even last year, and would need £10m savings to avoid deficit in 2012-13.
Biggest annual surplus recorded by Hinchingbrooke in past decade
Net deficits recorded by Hinchingbrooke over past decade
He added: “Projections in the bid process showed the potential losses facing Hinchingbrooke in the coming years could reach many tens of millions. We have been tasked with stopping taxpayers losing this money. Our plan is not only to do this and make the hospital sustainable, but to turn it into one of the best DGHs in the country.”
Circle expects the trust to “more or less” break even this year.
NHS Midlands and East strategy director Steve Dunn said Circle’s plans had been scrutinised by 54 evaluators during the tender, half of them clinicians. “These are the best available plans after quite a rigorous competition,” he said. There would be “no subsidy” for the trust, and “no requirement to pay Circle’s management fees if the trust underperforms”.
But Labour 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 eye-watering efficiencies and the onus is on ministers to ensure this doesn’t compromise the quality and safety of patient care.”