The failure of the first private NHS hospital is bad news for healthcare

The franchise's collapse will give ammunition to the left, but it's not as simple as public vs private.

by Rachel Savage
Last Updated: 09 Jan 2015

The first privately-run NHS hospital will be private no more, after AIM-listed company Circle pulled out of the franchise, blaming funding cuts and a crisis in A&E that has seen multiple hospitals declare emergencies.

But while many will trumpet it as evidence of the failure of healthcare privatisation, it’s not that simple. Neither public nor private sectors have a monopoly on failure - or success. What should be obvious, though, is that the NHS is creaking as we speak, and that there is now a dearth of fresh ideas about how to tackle the problem, from any point on the political spectrum.

When Circle took over Hinchingbrooke Hospital in Cambridgeshire in 2012, the move was simultaneously widely criticised as the beginning of the dismantling of the all-that-is-holy NHS and lauded as an example of how the private and public sectors could and should work together.

But despite Circle’s claim today to have ‘transformed’ the small district general hospital from a ‘basket case’ to one that has ‘saved the taxpayer approximately £23m’, it clearly struggled to make it profitable amid a wholesale squeeze across the NHS.


Why can't Government be more like business? - MT's feature from the early days of the Coalition.


The hospital’s funding was cut by a swingeing 10.1% this financial year and the company said the hospital had a ‘deficit’ of £1.3m at the end of 2013 – well before this winter’s A&E deluge. When Circle took won the franchise in 2011 the hospital had debts of £39m.

It had the right to pull out of the franchise if it had to pay more than £5m in extra support for Hinchingbrooke – it said it had paid £4.84m so far and would have had to fork out more this year.

The healthcare company is also throwing in the towel before the release of a Care Quality Commission inspection report, which it said it expected to be ‘unbalanced’. A letter from the CQC to the hospital leaked in September said, ‘staff treat patients in an undignified and emotionally abusive manner’. The report would no doubt be more of the same.

‘Like most hospitals, over the past year Hinchingbrooke saw unprecedented A&E attendances and not enough care places for healthy patients awaiting discharge,’ chief executive Steve Melton said in a statement to investors (who weren’t best pleased – shares were down more than 23% to 51p in mid-morning trading).

So is that it for private companies taking over hospitals? After all, it’s unlikely this particular case will make any dent in the army of businesses running everything from mental health services to blood tests.

No party will dare utter the words ‘private’ and ‘NHS’ in the same breath before the election - unless they’re lampooning opponents for doing so. And it’s anyone’s guess what Government, and so what health policy, will emerge from the most unpredictable contest in modern history.

But then again, private companies, driven as they are by the admirably straightforward profit motive, sometimes struggle to deal with the public sector's much more nuanced range of motivations and objectives. ‘The public sector is not driven by profit and shareholder value,’ Michael Kitson of Cambridge's Judge Business School told MT way back in 2010. ‘Things like health, education and security all have multiple objectives that are very hard to quantify and measure. You can't pursue them in the same way.’

That still rings true today. Moreover, private companies can’t just cherry pick the bits of the public sector they’d like to deal with in a system as impossibly intertwined as the NHS.

That doesn’t mean they should and will be excluded from the state entirely. NHS England boss Simon Stevens said in October he needs £8bn more funding by 2020, despite the NHS budget being ‘ringfenced’, and savings and efficiency improvements need to come from somewhere.

But before people continue to lambast companies as a poison pill or laud them as the saviour of British healthcare, everyone needs to take a long hard look at the entire system. With an ageing population, a disconnect between GPs, care in the community and hospitals and an enormous funding squeeze, the NHS desperately needs someone - anyone - who is prepared to grasp the nettle.

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