Q&A: Private sector deal for NHS hospital
- 31 January 2012
- From the section Health
A private company has been chosen to run Hinchingbrooke Hospital in Cambridgeshire.
It is the first deal of its kind in the NHS and, unsurprisingly, it has proved controversial.
What does the deal mean in practice?
Under the terms of the 10-year agreement, Circle will be able to hire and fire staff at the hospital.
They will also be able to make decisions about what services are provided.
However, any major changes will need the agreement of local health chiefs and the A&E and maternity units must be retained.
Circle has also agreed to clear the existing debt - about £40m. Annual turnover is £90m.
It thinks it can do this by making the hospital more efficient by cutting extra costs like reducing the amount spent on agency staff and trying to use assets like the operating theatres more effectively.
Once the 10 years is up the running of the hospital can then be returned into NHS hands.
How did the hospital get into this situation?
The simple answer is that it does not have enough patients.
Hinchingbrooke covers a largely rural area and as hospitals are paid - largely - on the number of patients they treat the trust has struggled to cover its operating costs.
The scale of the debt first became clear in 2006. Auditors were brought in and concluded the trust would not be able to clear them on its own - it is a relatively small organisation compared to many in the health service.
Local health chiefs - with the agreement of ministers - started exploring options for the future.
The trust is currently balancing its books, but with the NHS under pressure to make savings and more care being done in the community there is a fear the situation could slip in the coming years.
Who are Circle and could they make a profit from this?
Circle is already involved in providing NHS care, carrying out routine operations such as knee and hip replacements at centres in places such as Bath and Nottingham.
It describes itself as a social enterprise because 49.9% is owned by a partnership of employees.
Others see it as a private business as the rest is owned by its parent company, Circle Holdings, which is listed on the stock market.
And that means profits could end up in private hands.
If Circle makes a success of Hinchingbrooke, maintains NHS standards and pays off the debt, money can be handed over to the company's private backers.
How significant is this deal?
Make no mistake, the Circle deal is a major milestone for the NHS.
Private firms are already involved in the health service. They run clinics that provide routine treatment for NHS patients, such as knee and hip replacements.
And under patient choice, people can choose to be seen in private hospitals on the NHS as long as that hospital does the work at NHS cost.
But this is the first time a private company has been put in charge of an NHS hospital.
Will it pave the way for more?
It is too early to tell. There are another 20 hospitals in a similar position to Hinchingbrooke.
But that does not mean they will all go down the route Hinchingbrooke has.
Some are in talks with other NHS trusts about mergers, while others are looking to close services.
However, all those involved in troubled trusts will be monitoring what happens in Cambridgeshire.
And if it does prove successful, interest in similar arrangements will certainly grow.
What are the critics saying?
Unions have questioned why expertise could not have been found within the health service to run the hospital. They have described the deal as "an accident waiting to happen" and further proof of the creeping privatisation of the health service.
Health economists have also questioned the wisdom of the move, raising doubts about whether Circle can really make the savings it thinks it can.
Some also believe it could just lead to difficult decisions being put off.
Anita Charlesworth, chief economist at the Nuffield Trust, a health think tank, is not surprised by the level of scrutiny.
"I think the key question is does this deal provide a framework to resolve a financial problem, or put off the day when there has to be a decision about the hospital," she said.
But local health managers have said that without this deal the hospital may have had to close.