For the first time ever, a private company is poised to take over the management of an NHS hospital. Following a decision finalised last week, Circle Health will begin running the debt-ridden Hinchingbrooke hospital in Cambridge in February 2012. The company will have a ten-year contract and will be expected to cut the hospital’s debt and make a profit by reducing costs and increasing business from within the NHS.
Part of the story is the ongoing debate about ‘privatisation of the NHS’. Health Minister, Simon Burns, quoted by This Is Money makes clear that – from the government’s point of view – this is not what’s happening: “No NHS staff are leaving and assets remain within the public ownership. Hinchingbrooke Hospital will continue to deliver the same NHS services, as long as commissioners continue to purchase them, adhering to the key NHS principle of care being free at the point of use. This is not a privatisation in any shape or form.”
This article in The Observer seems to be a pretty weak attempt to use a recent Circle share prospectus as a hook for union leaders and Labour politicians to offer predictable objections to the deal. You don’t have to have extensive knowledge of the business world to know that when a company invites people and institutions to invest their money, it’s legally obliged to give them a clear picture of the challenges the company faces in delivering its objectives.
Circle’s statement in its June 2011 prospectus that: “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” is an explanation of a potential risk (to shareholders) not a company policy. Failing to provide a consistent level service is precisely what they’ll be trying not to do in order to successfully fulfil their contracts and provider investors with a return.
The complicating factor in this story is that Circle claims to be, or at least is often described as, a social enterprise. The Observer redeems itself with this informative explantiation of the company’s structure. The majority owner of Circle Health is Circle Holdings, a company owned by chief executive, Ali Parsa, and a range of venture capital and hedge funds. The minority owner, holding 49.9% of shares, is Circle Partnership, which is owned by Circle staff.
The Observer is clear about what this means for decision-making: “Both Partnership (ie the staff) and Holdings (ie the hedge funds) have an equal number of seats on the board of Circle Health, but the small print makes it clear, on almost all issues, that it is Holdings that makes the decisions,” while Christina McAnea, Unison’s head of health, makes the point even more forcibly in the This is Money article: “The company is pushing the line that staff are getting involved, while avoiding the fact that merchant bankers are the ones calling the shots.”
Leading social entrepreneur, Craig Dearden-Phillips, MD of Stepping Out, a company that supports the creation of public sector spin-out social enteprises, is a strong supporter of Circle’s takeover of Hinchingbrooke. Part of his argument is that Circle offers something that the NHS does not have available in terms of management expertise: “The NHS can’t do this. There is abundant evidence to show that it cannot deliver simple economies and is endemically incapable of dealing with lower growth in resource. The NHS could not, for years, balance the books at Hinchinbrooke. This is why, in desperation, it was tendered out.”
The other part of his argument is that Circle offers a winning combination of private cash and staff ownership which is ideally suited to the current financial climate: “The government is bust, in case nobody noticed. Circle have been able to bring new money to table. In addition, through its co-ownership model it is also bringing employees own energy to the equation, as co-owners of the company. Study after study attests to the benefits even of part-ownership like this.”
Given that their contract hasn’t started yet, it’s too soon to say what impact Circle Health will have on Hinchingbrooke hospital. Previous experiences of private managment of public services (such as local education authorities) suggest that the most passionate predctions on both sides of the argument – from supporters that private managers have a magical insight into the running of public services that public managers couldn’t possibly imagine, from critics that private managers will put service users in danger with nefarious acts of amoral profit-maximising inhumanity – usually prove to be incorrect.
As an organisation on the social enterprise spectrum – it’s probably safest to avoid a tighter definition than that – Circle Health offers a new approach to managing healthcare. I’m not quite as optimistic as Craig Dearden-Phillips but, for me, the fact that Circle is backed by private money, and majority controlled by the people who put up that money, is not enough of a reason to dismiss the model before it’s been given a chance.