Ministers face questions on company running hospital

Letter highlights debt risk to NHS as private operator seeks cash to stay afloat

By Richard Wachman | 21 June 2012

“We know that there is a re-organisation plan… But, so far, we have only seen a small bit of it” – Karen Webb, director, Royal College of Nursing’s eastern region

Ministers are under pressure to guarantee that patient care will not suffer if the UK’s first private operator of an NHS hospital hits financial difficulties.

Exaro has obtained a confidential letter that seeks assurances from Earl Howe, the health minister in the House of Lords. Behind the move is fury that the company, Circle Healthcare, is allowed to draw an annual ‘profit’ before first paying off the hospital’s massive debt.

The company has been running Hinchingbrooke Hospital in Cambridgeshire since February. A senior official at the public-sector union, Unison, has written to Howe as the operator’s parent company, Circle Holdings, raises cash from investors to avoid going bust.

The union wanted the correspondence to remain private at this stage because of acute sensitivity surrounding the debt-laden hospital.

Under a deal negotiated between Circle and the government, the company can take a minimum of £2 million in surpluses each year even if the hospital is in the red. Hinchingbrooke is currently £38.4 million in debt.

Unison’s national secretary, Christina McAnea, asks Earl Howe in her letter: “Circle itself only anticipates more or less ‘breaking even’ this financial year, [so] where does the risk reside?”

She continues: “Unison assumes that if the company is able to take profits from the hospital, that it must also bear the brunt of any faltering financial performance, rather than this directly affecting patient services or staff pay, terms and conditions.”

She claims in the letter that the financial arrangements were contrary to promises made by the company that it would “not make a profit until Hinchingbrooke’s debts had been paid off.”

She adds: “Health staff and NHS patients rightly expect that surpluses should go directly into improving patient care or paying off the hospital’s debt and thereby securing its future for local people, rather than translating into company profits.”

Her letter underlines rising concerns within the National Health Service about stealthy privatisation. Two days ago, Exaro revealed a leaked letter from the chief executive of NHS Direct, Nick Chapman, that showed how it is losing out to private companies competing to run new 111 helplines services across England. Exaro published the letter in full.

Circle Holdings lost more than £39 million last year. Without the injection of extra capital, the group faced becoming insolvent, according to documents released by the company at the time of the fund-raising.

But its position was strengthened after it raised nearly £48 million by placing shares with institutional investors.

Circle told Exaro that it has powerful financial backers, including Odey Asset Management, the hedge-fund group, and needed the cash for further expansion in the health sector.

But staff organisations at Hinchingbrooke fear for services and jobs. Karen Webb, director of the Royal College of Nursing’s eastern region, which includes Cambridgeshire, said that Circle had drawn up a secret re-organisation plan for Hinchingbrooke, but had only consulted on “narrow aspects” of it.

“We know that there is a re-organisation plan,” she said. “But, so far, we have only seen a small bit of it.

“I feel like I am walking around with my hands tied behind my back with a blindfold because I cannot say to [RCN] members, ‘Your working conditions will be protected, patient care [at Hinchingbrooke] will be protected.’”

Circle declined to respond directly to questions about a re-organisation or to queries about how quickly it would pay down the hospital’s debt. However, Christina Lineen, the company spokeswoman, said:  “Hinchingbrooke is being transformed into one of the best district general hospitals in the country.

“Already, it has gone from having the worst to the best accident-and-emergency department in the region; patient safety has improved by more than 70 per cent, and cancer targets have been met for the first time in months.

“The big news is Hinchingbrooke is proof that there is an alternative to cuts and closure for struggling NHS hospitals across the country.” It had also made major procurement savings, she added.

The Department of Health confirmed that Circle could retain an annual surplus of up to £2 million from managing Hinchingbrooke. It can also take a quarter of surpluses between £2 million and £6 million, but must bear any loss of up to £5 million.

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