Hinchingbrooke deal: Financial risks were not ‘fully considered’
08:44 08 November 2012
THE financial plans for the private management of Hinchingbrooke Hospital were not given enough scrutiny during the bidding process that eventually appointed Circle to run the Huntingdon facility, according to the National Audit Office (NAO).
As previously reported by The Hunts Post, Hinchingbrooke Health Care Trust, had projected that the trust would be in a £1.9million deficit after six months under Circle’s stewardship, but in September it reported a deficit of £4.1m.
Circle, which began it’s 10-year management franchise in February, said it has already improved the clinical side of Hinchingbrooke and would overcome the financial challenges.
But the NAO said that before any more NHS hospitals are run by private providers, the Department of Health must do a “lessons learned” exercise to make sure there are no weaknesses in the procurement process.
David Moon, director of health value for money studies at the NAO, said: “There are potential other franchises, currently George Eliot in Nuneaton is under review by the department as to how their management arrangements are going and this is one potential option.
“But we believe that before any other franchises are entered into, the department should do a lessons learned exercise to make sure that any weaknesses in the process are ironed out for any future tenders.”
In a report about the franchising of Hinchingbrooke, the NAO said that during the procurement process, the East of England Strategic Health Authority assessed the reasonableness of the bidders’ savings proposals but it did not fully consider the relative risks of the saving proposals.
“This is a first for the NHS - the NHS hasn’t done this before - so to an extent they were covering new ground,” said Mr Moon.
“Moving forward, if they are to have to do this again they need to assess the risk of the bids in a more defined way.
“Both bidders, Circle and Serco, were asked to come up with a whole range of saving schemes to deliver a minimum of £228million of savings over a 10-year period which they duly did.
“While the schemes were evaluated for: ‘Does this look a sensible scheme? And is it clinically safe? etc’ they weren’t evaluated to a financial level so they didn’t check whether the level of savings that were going to materialise from those proposals were actually going to happen.”
Circle plans to achieve £230m in savings over the 10-year contract.
“That is an unprecedented level of savings,” Mr Moon added.
If Circle does not deliver a surplus, it gets no franchise fee. But the first £2m of any in-year surplus is retained by the private provider and any surplus above £2m is split – some to pay off the historic £38m debt and the rest to Circle.
Margaret Hodge, chair of the Committee of Public Accounts, said: “Before handing Circle the contract, the Strategic Health Authority failed to test properly whether the required savings are even achievable. There is no clear and common view as to what would constitute a successful outcome or how that would be measured.
“Above all, I am astonished that the contract allows Circle to pocket any profit ahead of addressing the trust’s deficit. Worse still, Circle suffers no penalty if at the end of the 10 years the deficit is not paid off in full.”
Ali Parsa, Circle’s chief executive, said: “Remember that when Hinchingbrooke was first given to the Circle Partnership to run, all questions were on our ability to run A&E, and alleged threats to quality.
“Now, for the first time, Hinchingbrooke is consistently the best A&E performer and top full service hospital out of 46 in its region, and has received unprecedented positive reports from the CQC and Dr Foster.
“Having overcome the quality issues facing the hospital, we have little doubt that our partners in Hinchingbrooke will overcome the financial challenges too, and next year break even for the first time in years. Not bad for a hospital that faced closure and was written off as a ‘clinical and financial basket-case’.”