Circle Health has signed a £1bn contract to take control of Hinchingbrooke hospital in Cambridgeshire. Photograph: NHS/PA

Powered by article titled “Care may suffer, admits private company taking over NHS hospital” was written by Daniel Boffey, policy editor, for The Observer on Saturday 12th November 2011 22.13 Europe/London

The first private company to take over an NHS hospital has admitted in a document seen by the Observer that patient care could suffer under its plans to expand its empire and seek profit from the health service.

Circle Health is already feeling a strain on resources due to its aggressive business strategy, the document reveals, and the firm’s ambition to further expand into the NHS “could affect its ability to provide a consistent level of service to its patients”, it says.

The company, run by a former Goldman Sachs banker, was awarded management of Hinchingbrooke hospital in Cambridgeshire last week in a ground-reaking move lauded by ministers as a “good deal for patients and staff”.

However, the government was forced to answer an urgent question in the Commons after the move sparked furious accusations that the deal was privatising the NHS and putting jobs and health services in jeopardy. Concerns over the future of the health service were further heightened when David Cameron, in a speech on regulation and the economy, said he wanted the NHS to be a “fantastic business for Britain”.

The revelation that the company shares some of the fears of its critics has caused fresh uproar.

The head of health at the public sector union Unison, Christina McAnea, said it was an admission of the danger of bringing profit-seeking organisations into the health service. She said: “What they are saying, in black and white, is what we have been saying all along: that introducing profit into the NHS risks putting patient services under strain. This is a very real fear for patients at Hinchingbrooke hospital.

“If the company is allowed to expand into the NHS as the government brings in its reforms through the Health and Social Care Bill this, it appears, could put many more patients at risk.”

Circle’s admissions come in a share prospectus it was legally obliged to publish in June when the parent company, Circle Holdings, floated in London. It had been in negotiations with the government for two years over the takeover of Hinchingbrooke hospital; as the preferred bidder, it expected to be successful. In its document, the company reveals its aspiration to take over further hospitals but also spells out the risks to patients. It says: “As well as the establishment of further independent hospitals, Circle intends to significantly expand its NHS business.

“Circle’s growth has placed, and its anticipated growth will continue to place, a strain on its managerial, administrative, operational, financial, information technology and other resources and could affect its ability to provide a consistent level of service to its patients.”

Circle Health will manage the debt-laden Hinchingbrooke hospital from February, after the government approved on a decade-long contract worth £1bn. Although private sector firms already operate units within the NHS – such as hip replacement centres – Circle, one of Britain’s most prominent healthcare providers, is the first to take over an entire hospital. The government says the takeover is not to be considered a full privatisation, as the buildings will remain in public hands and the employees retain their pay and pension on existing terms. However, the company will make a profit if the hospital, which is £40m in debt, achieves an annual surplus, which the company hopes to achieve through a new management style and cost-cutting.

Circle, which is backed by City hedge funds run by Crispin Odey and Paul Ruddock, who have donated £790,000 to the Conservative party, admits in its share prospectus to having made losses since it was set up in 2004. The latest accounts show an operating loss of £34.97m as of December 2010.

Labour MP Valerie Vaz, who sits on the health select committee, said the revelation should prompt second thoughts by ministers: “It is difficult to comprehend how Circle can maintain a proper standard of healthcare while maximising profit; as a company they would have to make a profit, but that can only come if costs are cut – such as a shorter stay in bed to recover, one less nurse. That must compromise patient care,” she said.

Circle is viewed by ministers as a model “mutual” with 49% of its ownership in staff hands. It operates a scheme to allow more shares to be gained through a performance-related rewards system. Its structure allows doctors to take a slice of the profits, and the government believes that could lead to other struggling hospitals outsourcing their management to private companies.

The market to run state-owned acute services is worth £8bn and, with hospitals forced to find savings every year, experts warn that many will have to consider private help to meet efficiency targets.

Two NHS trusts are considering private sector management options: the Royal National Orthopaedic hospital in London and the Whiston hospital (St Helens) on Merseyside.

A Circle spokeswoman said: “Every stock market admission document contains a large number of risk factors to account for every conceivable eventuality. For example, other risk factors cited in Circle’s case include incurring financial penalties as a result of failure to comply with environmental regulations. For a young and fast-growing company, citing the risks involved in managing that growth is a statement of the obvious.”

The shadow health secretary, Andy Burnham, said: “The more we learn about this deal, the more we hear worrying echoes of Southern Cross. It will not fill people with confidence to hear that, by its own admission, this company has doubts about whether it can meet the continuity of service and consistency of care that is essential in the NHS. In their desperation to open up the NHS to the private sector, it seems ministers are taking an unacceptable gamble with essential services.” © Guardian News & Media Limited 2010

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