What Hinchingbrooke tells us about private sector providers in the NHS

The withdrawal of the private healthcare company Circle from its contract to manage Hinchingbrooke hospital is a significant event in a year when the future of the NHS has never been under such scrutiny. 

There are more than 240 NHS trusts and foundation trusts in England, of which more than 140 are providers of acute services.

Hinchingbrooke was the only trust to be managed by a private provider. As such it was held up as a flagship of public-private collaboration by some, and regarded a flat out privatisation by others.

While there were some who were disappointed at Circle’s decision to hand back the keys, there are many who were pleased, even relieved, at the result.

To this second group, the rapid failure of the pilot scheme is evidence that the private sector has no role to play in UK healthcare.

Labour grandee Lord Owen captured opposition sentiment succinctly: “This has been a heavy defeat for an ideological solution that can work well in manufacturing or retailing, but runs into problems in healthcare, where there is already reluctance among taxpayers to fund the sort of very high returns on capital that they are already paying through the [private finance initiatives] in the NHS.”

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Loss leader

While no one could argue that the Hinchingbrooke experiment has been a success, it is certainly not a resounding failure.

It is far better to take a longer view and consider the real, and very useful, lessons that can be learnt from this episode. Taking a sample of one and extrapolating to a population of more than 240 is inherently risky, and fails to consider a multitude of factors that could have changed the outcome entirely.

One-off deals or loss leaders are unlikely to be attractive to the private sector in the near future. The 2011 Circle agreement never made sense as a standalone deal. It was always envisaged as a pilot and as the first step in a scale up that never occurred.

It is therefore difficult to see new private investors, post-Circle contract, committing significant resources to the sector without a clear view of the future pipeline of transactions or more favourable economics around the individual deals.

‘A private third party provider should be allowed to make money if they deliver a quality service’

In the absence of any other deals and economies of scale, it is no surprise that a district general hospital with just more than £100m revenue is struggling financially.

Circle itself cited in its withdrawal statement that the economics for small and medium sized district general hospitals have changed markedly since the agreement was struck.

Monitor reports that, in the six months to 30 September, small and medium sized acute trusts made a net loss of £265m. Much of this has been driven by the skew of activity within DGHs to emergency and types of medical care that are less profitable to the provider.

Although the theory is that much of this care should be provided in the community, this is not the case in much of the country, so it is unrealistic to expect an isolated provider such as Hinchingbrooke to buck this trend.

Money talks

Money is, ultimately, the reason that a private third party provider would move into healthcare, and they should be allowed to make money if they deliver quality and quantifiable patient service.

Putting aside the specific CQC report on Hinchingbrooke – which is a separate subject in its own right – it is patently obvious that a private provider must be able to reap the rewards of its own success.

Unless private providers are able to make money when successful, they are unlikely to be able to commit the resources required to deliver success.

‘New models that seek to align the interests of staff, patients and private management should be explored’

Furthermore, the standard to which they are held must be objective – otherwise there is too uncertainty about whether the quality measure has been met or not.

Without significant freedoms for private providers – for example, on remuneration and contracts – it is difficult to see how they could provide services more effectively than state providers. 

Ultimately, enough management decision making and control must pass to the private provider to really test if they can deliver a better, more cost effective set of services than existing players.

New thinking

While the Circle-Hinchingbrooke alliance has not been successful, it would be a pity if we walk away with the wrong message.

Healthcare is a service that relies almost exclusively on the staff who provide it, and new models that seek to align the interests of staff, patients and private management should be explored.

‘Healthcare is a service that relies almost exclusively on the staff who provide it’

However, unless there is significant discretion for private providers to introduce new management arrangements and incentivise staff in innovative ways, it is unlikely that there will be a significantly different result.

If we want healthcare to be different and to be better, we must be prepared to take rethink everything we know.

We can’t act surprised if, by forcing different organisations to do the same thing, we get the same results. 

Tim Bolot is managing partner of Bolt Partners