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Is profit a price worth paying to save local hospitals?

What do you do with a hospital that is almost £40m in debt on an annual turnover of £90m? Continuing with the current operating model is clearly not the answer. Perhaps you could close it and send patients elsewhere. Or do you keep plugging the holes, while trying to find some efficiency savings?

In the case of Hinchingbrooke Hospital in Cambridgeshire, the proposed solution was to launch the first open competition for an NHS operating franchise. In short, NHS Midlands and East called for bids to run the failing hospital – bids that could come from the NHS, private providers, or the third sector, from potential partners based in the UK or abroad.

The result was a 10-year, £1bn deal with Circle – a provider previously known to the NHS for performing hip and knee replacements. The company has been compared to John Lewis for its social enterprise model, in which 49.9% is owned by an employee partnership. They claim to reinvest profits in patient services. But critics point to the fact that Circle Holdings is a private business listed on the stock market and will clearly want to make money from the deal.


Privatising the NHS?

Although Circle says it has committed to paying off the debt held by the hospital, it is not contracted to do so and the company's chief executive Ali Parsa told The Guardian newspaper the aim was to make £60m profit over the 10-year contract.

Accusations of privatising the NHS and warnings of a slippery slope for handing off struggling sections to companies putting profit before patient care have pervaded the national media. Unison called it ‘an accident waiting to happen' and insisted the skills to turn round the hospital could have been found within the NHS.

Andrew MacPherson, director of customer service strategy in the strategic projects team at NHS Midlands and East, insists nothing has been privatised: ‘The assets all remain within the NHS, we haven't sold it off.'

He is candid about the resistance his team faced locally when the procurement process started.

With a background in rail privatisation, it will not have been the first time he has been faced with a public outcry. He describes some of the initial public meetings as ‘incredibly hostile' and at the start there were some very ‘deep concerns' from the public and their representative organisations.

Yet by the time the decision was announced, local people and clinicians were passionate about supporting Circle, he stresses: ‘The example I always give is of the local newspaper headlines at the start and end of the process. Back in 2007/8 the headlines said "Hands off Hinchingbrooke" and when it was announced that Circle would take over they said "In safe hands", which gives you an idea of public confidence in the decision.'


Public scrutiny

Almost any discussion on working with the private sector within the NHS will include the words ‘communication' and ‘transparency'. Yet often this merely means informing the handful of members of the public who always turn up to patient councils of forthcoming plans, or sticking a load of minutes on a website somewhere.

At Hinchingbrooke, the high level of scrutiny, media exposure, sheer size of the contract, and implications for the future direction of the NHS all meant that from the start there was a greater level of patient interest than is seen in other, smaller, tendering competitions.

In addition to the usual public meetings, Mr MacPherson says he used up a lot of shoe leather attending parish councils, community meetings and anywhere else that local people wanted to hear about the plans.

‘There was a freephone number and a freepost address from day one, as well as very large – and initially noisy – public meetings, a dedicated website and a monthly email newsletter,' he says. ‘We also did stakeholder mapping so we could see who was interested, who was opening the emails and who was reading what, so we could see what the areas of concern were.'


Prize-winning procurement

It was a public consultation in 2007, where patients said they wanted the hospital to survive, that led to the strategy for an open procurement process. Yet it was not until summer 2009 that the Treasury signed off on the plans. Various rounds saw bidders drop from 11 at the prequalification questionnaire stage to a final two.

‘We would have been rigorous under any circumstances,' says Mr MacPherson, whose team has since won awards for their robust procurement process. ‘But we were acutely aware of this huge spotlight. Many people were looking for us to fail.'

He adds they were also very aware of the huge ideological issues that the procurement process raised: ‘But it wasn't about proving something, it was always about the best possible outcome for patients.

‘This had to be the best deal and to get that we had to ask everybody, or at least as many people as we could, not just restrict the process to local providers. We had to demonstrate that using competitive tension improved the deal for the hospital.'

The team had experience, albeit on a smaller scale, from Bedfordshire and Luton Mental Health and Social Care Partnership NHS Trust, which in 2010 merged with South Essex Partnership University NHS Foundation Trust – the first such deal in the NHS – after bids from more than 20 NHS organisations.

‘That, of course, was NHS-only,' says Mr MacPherson. ‘But it proved to us that through that process we could attract the strongest possible partners.'

Among the 11 providers who put themselves forward for Hinchingbrooke, two were from the NHS. This included the local Cambridge University Hospitals NHS Foundation Trust, but after they chose to drop out of the running in February 2010, the five remaining applicants were private providers.

By October that year just Circle and Serco were left. Initially Serco had applied as a joint venture with Guy's and St Thomas' NHS Foundation Trust, before going on alone when their NHS partner withdrew from the race.


Clinical procurement

Inclusion of clinical staff was also integral to the procurement process itself, says Mr MacPherson, describing GP involvement as pivotal to its success.

Just like the public, clinicians went from being highly sceptical to saying, ‘let's just hurry up and get on with it'. The GPs were particularly focused on governance, he adds, which had to be ‘bomb-proof'.

The turnaround in local GPs' opinion can be illustrated by the fact that on two occasions they wrote to Prime Minister David Cameron to ask him to speed up the sign-off process after months of waiting for the final approval.

‘That to us signalled very clear support for a project that was initially very controversial,' says Mr MacPherson.

Liz Sargeant, who was chief officer at Hunts Health, the local GP commissioning group at the time of the procurement, says the extent of GP involvement was vital in ensuring their support: ‘They could have been very against it and they were sceptical at the beginning. They were much more likely to have supported the outcome having been involved in it rather having had it foisted on them by managers.'

She adds: ‘What became very clear to the GPs is that, like the patients, they wanted a local hospital and this was the best way to ensure they still had one. It had no means of survival any other way.'

Their involvement was not just lip service, she points out, but genuine influence: ‘We were heavily involved in the clinical evaluation, which took over a week of our lives. There was an interview process for preferred bidders which involved a group of GPs and there was consensus on that day. There was also a really good process for clinician feedback and there were virtual meetings and conference calls to take into account the busy schedules of clinicians.'

A stakeholder panel of GPs, hospital clinicians and representatives of the local authority, trade unions and patients was set up. And within the procurement process there were 52 clinicians who had direct involvement in the evaluation of the bids.

She too believes there has been far more criticism of the move nationally than locally, where members of the public and clinicians had taken the time to understand the reason for the decision and were comfortable with it being the best option.

‘I would even say that probably there is more scepticism now among clinicians locally who don't use the hospital – say in the rest of Cambridgeshire and Peterborough – than with the local GPs who have bought into it.'


Circle's options

Circle was definitely not the biggest nor most experienced company to make the shortlist. It has never run an A&E or maternity ward and its only other hospital has just 16 beds. This begs the question: what can they do to clear this massive deficit that the current management team or even foundation trust chief executive could not?

Critics say it cannot be done without massive cuts. This was a hospital that had been seriously struggling because it did not have enough patients. Internal mistakes with Payment by Results tariff payments had left the hospital underfunded and a new diagnostic and treatment centre that opened in 2005 had not received sufficient referrals because of a shift of patient care into the community.

Circle, alongside clinicians, has produced a 16-point plan for how it will turn services around. The quick version is that they want better patient care, efficiency savings through cutting waste and smarter procurement, and for the hospital to become a centre of excellence, attracting patients from far afield.

Mr MacPherson says that through the transaction comparator model they ran during the bidding process, it was clear that Circle and Serco were offering significantly better performance than the NHS and the other bidders: ‘The challenge facing quite a lot of small district hospitals is one of scale. Our position is small can be beautiful. It's about small, niche service provision. And it's about applying commercial discipline without compromising quality.'

Could it be that there are smart business decisions that those outside the NHS are able to see more clearly? Certainly one of Circle's first moves, to cap hospital parking charges at £2.50 a day and scrap parking fines, seems a sensible one in terms of encouraging patients to use the hospital.

‘It is an opportunity to be smarter in managing resources and understanding what could be redistributed,' says Mr MacPherson. ‘For example, they are going to look at moving a lot more services into the massive PFI treatment centre, which currently operates on a Monday to Friday. That's a very sophisticated building. It's simple stuff, really.'

He also points to the high level of inclusion of staff members: ‘Within 12 weeks of Circle taking over, their business plans have seen contributions from more than three-quarters of staff. That in itself is a fascinating model for the NHS, because there is a huge passion for the NHS among its staff but usually the level of inclusion – the number turning up to meetings – is not that great.'

The one different thing about Circle, according to Ms Sargeant, is that it has the clinicians running the show with the management as support.

‘There's so much talk about [clinically led hospitals], but Circle actually do it. You can really see the clinicians stepping up to the plate and that's so obvious,' she says.

She no longer works for Hunts Health, but as a local resident has already heard friends and neighbours talking about the changes since Circle took over.

‘Much remains to be seen and we are, of course, in the honeymoon period, but people I know who have used the hospital say the difference is palpable. They are being seen quickly without feeling rushed. The food is better. They seem to be doing the added-value bits so the experience is improved.'

When the deal was publicly announced, it was widely reported there were 20 other hospitals in the same place as Hinchingbrooke. With ongoing national press coverage it is clear that the scrutiny of the Circle ‘experiment' is far from over. There is due to be a benefits realisation exercise in 12 months' time, although it may be far longer before the full implications of the decision are seen.

‘Who knows where we will be in 10 years' time, but hopefully the interface between the NHS and the private sector will be seamless and it won't be seen as such a controversial thing,' says Mr MacPherson.

‘Now there's such an economic imperative around sustainability we have no choice – but I see it as a huge opportunity rather than a huge threat.'

Emma Wilkinson is freelance journalist