East of England strategic health authority has advertised for a franchisee to take over deficit-hit Hinchingbrooke hospital.

The SHA said it may be prepared to pay a subsidy to keep the hospital running and has not ruled out incorporating community services into the franchisee’s contract - which could make it more attractive to potential bidders.

Bidders would be expected to increase the hospital’s operating surplus but not to clear its debt in full over the franchise period

Hinchingbrooke Health Care Trust has an annual income of around £92m and an accumulated deficit of £39m. It made the decision to franchise out its management last year, after ruling out the options of a sale or service cuts.

The SHA this week formally asked for bidders to run the hospital under franchise for approximately seven years. Staff and assets will stay in the NHS but the SHA is open to bids from either foundation trusts or private companies.

SHA director of strategy Stephen Dunn told HSJ bidders would be expected to increase the hospital’s operating surplus but not to clear its debt in full over the franchise period.

He said the SHA would be willing to pay a subsidy over the NHS tariff rate if the mark-up was “competitively determined” through the tender process. He said the SHA would see that as “the price of maintaining the range of services” as it would not tolerate cuts to services.

Potential bidders are also interested in extending the franchise to community services, as profitability might be increased through vertical integration - for example by reducing bed days using “step down” facilities in the community, or by taking over entire patient pathways to reduce admissions.

Asked whether community services could be included in the franchise, Mr Dunn said: “We are happy to enter into dialogue. We are keen to explore all proposals which will drive up quality, innovation and safety.”

That could include a joint bid with a local community services provider arm, but any successful franchisee would need to be approved by the local commissioner, NHS Cambridgeshire.

The SHA will be looking for an annual franchise fee from the successful bidder, likely to comprise a fixed annual fee plus a variable element, based on a percentage of annual income.

The SHA will consider a one-off fee, but is mindful such bids could prove poorer value to the NHS as the franchisee would probably need to borrow the cash and incur interest payments.