Tag Archives: NHS Reform

Virtuous Circle?

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.

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‘Largest social enterprise sector in the world’ some way off

It’s now over a year since health secretary, Andrew Lansley, used the launch of his first white paper to announce plans to turn the NHS into ‘the largest social enterprise sector in the world’. A report published this month by respected health think tank, The Kings Fund, explains that there’s still some way to go to achieve this goal and suggests that the current climate may actually be less conducive to the establishment of sustainable social enterprises in the UK health sector than the set-up under the previous government.

The basic situation is that the impact of New Labour’s Right to Request programme was fairly limited. Not limited in terms of the good work done by the new social enterprises that have been created as a result of the programme but limited in the sense that a very small number (only 20 so far with a few more to follow later this year) of organisations have been created.

While the Right to Request guaranteed that those who managed to jump through necessary hoops to set something up usually got a decent package of support and a long-term contract with the organisation they were leaving behind, the new government’s Right to Provide offers no such guarantee. So, while many NHS staff previously baulked at the idea of leaving the NHS to form a social enterprise in a situation where that social enterprise had a guaranteed 3-year-plus contract and was willing and able to match their existing pay and conditions, the offer is now that they can form a social enterprise and bid for a contract against Foundation Trusts and private sector providers.

The spoonful of sugar has been removed and the new government has an alternative, more robust, strategy for making the medicine go down. Unfortunately, despite Mr Lansley’s statement, social enterprise is no longer necessarily the medicine of choice. The government has imposed a purchaser/provider split that means PCTs (mostly on their way out) can no longer commission services from themselves. In some cases this has seen PCT provider arms are becoming social enterprises, in other cases their functions are being absorbed by local Foundation Trusts and private sector providers are also able to bid for contracts. So while many NHS staff will have no choice but to embrace change, it’s not likely the majority will end up forming or working for social enterprises.

In terms of what’s happened so far Social enterprise in health care reflects a largely fruitless search for evidence of the effects on social enterprise in healthcare. What is offered on ‘Impact of Social Enterprise’ is mostly about whether social enterprises are the best vehicles for delivering greater internal engagement between staff and management.

There’s two problems with this. One is that the report embraces the apparently contradictory position that particular structural forms are not a big issue:  “We do not differentiate between the structural forms that the various organisations may take. Instead, we categorise them as social enterprises because of their overarching intention of operating independently from the NHS, and reinvesting profits for the benefit of patients.”

while offering very little evidence for the benefits of any social enterprise structures not based on employee ownership (which is most of them). The other is that the evidence about the benefits of employee ownership doesn’t have anything specific to do with health and social care – and certainly don’t explain how employee ownership will make health services better beyond general suggestions about making organisations less bureaucratic and more innovative.

This confusion is more a reflection of a general state in the sector than a reflection on the Kings Fund. While there’s a broad consensus that more social enterprise in healthcare is a good thing, people’s motivations for signing up that consensus are incredibly diverse and, in some cases, barely explained at all. So there’s the problem that there’s not yet much evidence so far of what social enterprise can do for health and social care, combined with the problem that there’s no broad agreement on what it’s important to have evidence of.

Overall, Social enterprise in health care‘s sombre assessment of what might happen in the current climate still seems optimistic based on the practical realities. Some of the report’s final recommendations focus on social enterprise directors engaging with staff and being supported to develop business skills. This is important but these things won’t, in themselves, enable new social enterprises to compete successfully for contracts with Foundation Trusts and large private providers.

The key recommendation that would do that  is: “The guarantees and provisions of the earlier Right to Request programme should be continued. Arguably, the programme has been successful because of its commitment to guarantee pensions for existing NHS staff, as well as the investment in awareness-raising and development support, the contract guarantee, and backing from the centre for individual applicants when faced with local, regional and trade union opposition.”

This seems unlikely to happen but, if the government genuinely wants social enterprises to take on a significant portion of NHS delivery, then either some initial contract guarantees or preferential commissioning is vital.

Amidst the confusion and bluster, a couple of things are clear:

(a) there are some highly committed, entrepreneurial people in the UK who are successfully using social enterprise as a vehicle to deliver health services that are more flexible and responsive to need than existing NHS service without focusing on shareholder profit and – despite the growing practical challenges – some others will follow their lead in the near future.

(b) if the government really is committed to creating opportunities for socially enterprising approaches to delivering healthcare, it will have to provide practical support to existing social enterprises, new social enterprises and spin outs to tip the scales in their favour.

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