Privately-run Hinchingbrooke Healthcare Trust has negotiated a £4m cash advance on its service contract with its local primary care trust cluster to ease “cash flow issues” after posting a £4.1m in-year deficit.

The trust’s mid-year financial report revealed the hospital, run by Circle, struck a deal in which NHS Cambridgeshire and Peterborough advanced it the sum from its £80m annual service contract which is normally paid in 12 monthly instalments.

The report, which covers the six months to September 2012, said: “The cash position has improved since month five with the receipt of £4m. This is in respect to early payment against the Hinchingbrooke Healthcare Trust contract with NHS Cambridgeshire and Peterborough.”

Hinchingbrooke chief finance officer Jenny Raine told HSJ: “[The early payment] is related to the cashflow issues. It is not extra money - it’s just a timing flow issue in terms of payment.

“This is money that we had to spend on locum staff and some other non-contractual payments for some of the transformation programmes that we have got.”

The trust’s cash balance dipped from £5.4m in April to £2.7m by August. Following the £4m injection, it now stands at £5.5m (measured by year to date).  

Hinchingbrooke also posted a budget deficit for the first half of 2012-13 of £4.1m – £2.2m more than forecast.

The trust attributed its higher than projected deficit to cost pressures including use of agency staff and failure to deliver some targeted savings. 

Ms Raine said the trust hoped to reduce the deficit to £3.5m by the end of the year. In order for the books to balance, the cost will be covered by Circle.

She added: “We set a balanced plan but very early in the year we realised that there was a risk that the ambition to break even might be challenging. Under the franchise agreement, Circle has to pay a franchise payment to get that back to zero.”

A Circle spokeswoman said the trust had chosen to “fix quality problems before turning to the finances”.

She added: “Big quality issues had to be tackled in our first six months, including a colorectal department condemned by the [Royal College of Surgeons] as ‘dysfunctional’, a historic failure to recruit high-calibre consultants, and problems meeting national targets. 

“We’re confident that we’re now on track to reach a sustainable break-even position by the end of the next financial year.” 

Concerns surrounding the trust’s cash flow were first reported by HSJ this summer following publication of the trust’s June 2012 finance report.

The June report said: “As a result of the deficit incurred in the first quarter and the increase in outstanding debtors, the trust faces pressure on its cash balances.

It added: “Any further slippage on the cost improvement programme will reduce this balance to an even more critical level. The trust may need to consider what access it has to loans and other cash injections to bridge this period.”

The October report said trust had secured £1.2m of the £1.6m savings it planned to have made.

The trust has revised down the amount of original savings it expects to make over the full financial year to from £9.9m to £7.5m.