The losses built up by Hinchingbrooke Health Care Trust in its first two years under private management are just £150,000 short of the £5m ceiling at which the contract could be terminated.

According to the half yearly report of Circle - the firm contracted to run the hospital - it made £4.85m in “cumulative support payments” to the trust since the contract started in February 2012.

This represents an almost 40 per cent increase on the accumulated loss for 2012-13 of £3.5m.

Under its 10 year contract with Hinchingbrooke, the firm has agreed to pay any deficit at the trust - in the form of support payments - up to a cumulative total of £5m.

After this point “both parties must agree the basis for the continuation for the franchise”, today’s report said.

Although either Circle or the trust could then terminate the deal, this would require Circle to pay Hinchingbrooke a £2m fee.

Circle’s report admitted to “uncertainty over Hinchingbrooke’s profitability over the next year”, raising the possibility that the limit could be broken this year.

However, the company said it believed its “patient centered and innovative approach should ensure the long term sustainability of the contract”.

Circle said it ended 2013-14 with a higher than expected deficit of £1.3m because of “unanticipated contractual deductions” imposed by Cambridgeshire and Peterborough Clinical Commissioning Group.

It described the local commissioning environment as “challenging”, pointing to “higher than normal reductions in national and local tariffs” and the introduction of new payment regimes “designed to ease short term systemic pressures”.

These developments could have a “disproportionately negative impact on small and successful trusts like Hinchingbrooke, as [the payments] redirect NHS funds towards struggling hospitals,” the report added.  

Across its portfolio, Circle recorded an operating loss before exceptional items of £7.2m for the first six months of the year.

The report pointed to large increases in demand from the NHS for its services in its private hospitals in Bath and Reading.

NHS patient volumes were up 52 per cent and 235 per cent respectively, it added.

The report said “political uncertainty” leading up to the election could hold back NHS procurement, but that more musculoskeletal contracts were expected to come to market over the next year.

The firm began delivering an MSK contract in Bedfordshire this year.

It also said the effect of political uncertainty was expected to be a “short term trend”.

“Whichever party or coalition is in power from next year, the challenges will remain the same, and an employee co-owned provider, dedicated to its patients and to improving care, remains an attractive service partner for the NHS,” the report said.

A Circle spokesman told HSJ: “We are not contemplating any pull out from the [Hinchingbrooke] contract, given the radical transformation we have delivered.

“Like many NHS hospitals, we are constantly engaged with the NHS to understand the consequences of changes in the payment mechanisms, and we believe that our patient-centred and innovative approach should ensure the long-term sustainability of the contract.”

Circle chief executive Steve Melton said Hinchingbrooke’s budget planned for the trust to finish the year with a £2m surplus.

The firm was “very committed to seeing the contract through successfully to its full term, and so we believe are the NHS”.