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As we warned in 2013, the taxpayer has been left exposed by the failure of the Hinchingbrooke franchise according to the Public Accounts Committee's report published Wednesday 18 March 2015.

• Report: Circle withdrawal from Hinchingbrooke Hospital
• Report: Circle withdrawal from Hinchingbrooke Hospital (PDF 343 KB)
• Inquiry: An update on Hinchingbrooke Hospital
• Public Accounts Committee

Chair's comments

"Circle became the first private company to run an NHS hospital when it took operational control of Hinchingbrooke Health Care NHS Trust in February 2012. However, in January 2015, Circle announced that it intended to withdraw from the contract, just three years into the 10-year franchise.

Whilst this was an innovative – but ultimately unsuccessful – experiment, we are concerned that none of those involved in the decisions has been properly held to account.

Despite our warnings about the risks, oversight of the contract by the various parties who had a role was poor and inadequate and no one has been held accountable for the consequences.

As we warned in 2013, the taxpayer has been left exposed by the failure of the Hinchingbrooke franchise. Circle was not able to make the Trust sustainable and the NHS Trust Development Authority did not take effective action to protect the taxpayer.

It was clear at the time the franchise was let that the Trust would only survive if it secured substantial savings, but the savings projected in Circle’s bid were overly optimistic and unachievable.

The Department later told us that it was confident of success and played down the high degree of risk involved in this novel contract.

However, the total deficit incurred during the franchise will be well above the level that Circle is contractually committed to cover, leaving the taxpayer to pick up the rest of the bill.

We want to know the total cost to the taxpayer due to the failure of the franchise, including the costs of transition arrangements and the total cost of covering the financial deficits incurred during the franchise.

The Care Quality Commission inspected the Trust in September 2014 and gave the Trust an overall rating of 'inadequate'. The Trust and Circle have challenged the Commission’s assessment, although Circle has acknowledged that Hinchingbrooke did have areas to improve.

We were not given a satisfactory explanation as to why the inspection rating was inconsistent with previous assessments of care quality at Hinchingbrooke. The contradictory assessments risk confusing commissioners, the public and others about the actual quality of care being provided.

We are also concerned that lessons on awarding and managing major contracts will not be learnt from this venture. The Department told us that no trusts are currently considering an operating franchise model, but the NHS continues to award major, high value contracts.

Public bodies will not achieve value for money from their contracts until they become more commercially skilled – both in letting contracts in the first place, but also in ongoing contract management."

Margaret Hodge was speaking as the Committee published its 46th Report of this Session which – on the basis of evidence from Hisham Abdel-Rahman, Chief Executive, Hinchingbrooke Hospital, David Behan, Chief Executive, Care Quality Commission, Maureen Donnelly, Chair, Cambridgeshire and Peterborough Care Commissioning Group, Richard Douglas, Director General for Finance and the NHS, Department of Health, David Flory, Chief Executive, NHS Trust Development Authority and Steve Melton, Chief Executive, Circle Holdings – examined Hinchingbrooke Health Care NHS Trust.

In February 2012, Circle took operational control of Hinchingbrooke Health Care NHS Trust, becoming the first private company to run an NHS hospital. In January 2013, we expressed concerns that Circle's bid to run Hinchingbrooke had not been properly risk assessed and was based on overly optimistic and unachievable savings projections. The Department of Health responded that the NHS Trust Development Authority would monitor progress and take action if the Trust was failing to deliver on its plans to make the hospital financially sustainable. In the event, Circle was not able to make the Trust sustainable and the NHS Trust Development Authority did not take effective action to protect the taxpayer.

In January 2015, Circle announced that it intended to withdraw from the contract, just three years into the 10-year franchise. It told us that its decision was based on three factors: the rising demand for healthcare that the Trust was having to deal with; income not increasing in line with this rise in activity; and its view that there was no immediate prospect of reform in the local health economy which would be needed to make the Trust sustainable. Also in January 2015, the Care Quality Commission published the results of its inspection of Hinchingbrooke, which gave the Trust an overall rating of 'inadequate'. The Trust disputes the Commission's assessment, but Circle said that the inspection was not the reason for its decision to withdraw from the contract. Whilst this was an innovative experiment we are concerned that none of those involved in the decisions has been properly held to account.
Hinchingbrooke Health Care NHS Trust (the Trust) is a small district general hospital in Cambridgeshire, with some 250 beds and nearly 1,500 staff. In 2013–14, the Trust had an annual income of £111.6 million.

It has had a history of financial difficulties and had an estimated underlying deficit of between £3 million and £4 million in 2011–12. In 2007, the Department of Health (the Department) gave the then Strategic Health Authority approval to explore options to implement a new management structure at Hinchingbrooke, with the aim of making the Trust financially sustainable and enabling it to repay the cumulative deficit. Following a procurement process, the Strategic Health Authority awarded Circle a 10-year operating franchise beginning in February 2012.

Under the terms of the franchise agreement, the Trust’s services, staff and premises remained within the NHS but the management functions passed to Circle, which is responsible for meeting the requirements of the agreement and ensuring that safe and high-quality NHS services are provided to the public. The Trust board is responsible for monitoring performance against the franchise agreement. Cambridgeshire and Peterborough Clinical Commissioning Group monitors the clinical performance of the Trust. At national level, the NHS Trust Development Authority oversees the performance of all NHS trusts, including Hinchingbrooke, and the Care Quality Commission regulates the quality and safety of care. The Department is ultimately responsible for establishing systems that protect health service users and taxpayers.

In January 2015, Circle announced that it had entered into discussions with the NHS Trust Development Authority with a view to withdrawing from the contract. It expects to hand back responsibility for running the Trust to the NHS by the end of March 2015.

Conclusions and Recommendations

As we warned in 2013, the taxpayer has been left exposed by the failure of the Hinchingbrooke franchise. It was clear at the time the franchise was let that the Trust would only survive if it secured substantial savings. The Comptroller and Auditor General’s 2012 report highlighted that the savings projected in Circle’s bid were unprecedented as a percentage of annual turnover in the NHS. At our subsequent evidence session, the Department told us that it was confident of success and played down the high degree of risk involved in this novel contract.

Our February 2013 report also highlighted that, while some financial risk and demand risk had transferred to Circle, it was always clear that the NHS would have ultimate responsibility for maintaining the service for patients. The franchise agreement transferred up to £7 million of financial risk to Circle over ten years, with the company agreeing to pay the first £5 million of any deficit and a further £2 million for costs in the event of the contract being terminated. In the first two years of the franchise Circle made payments totalling £4.8 million to cover the Trust’s financial deficits, and recent figures indicate that the deficit for just the first nine months of 2014–15 was £7.5 million. It is clear therefore that the total deficit incurred during the franchise will be well above the level that Circle is contractually committed to cover, leaving the taxpayer to pick up the rest of the bill.

Recommendation: The Department and the NHS Trust Development Authority should report to the Committee on the total cost to the taxpayer arising from the failure of the franchise, including the costs of transition arrangements and the total cost of covering the financial deficits incurred during the franchise.

Despite our warnings about the risks, oversight of the contract by the various parties who had a role was poor and inadequate and no one has been held accountable for the consequences. Accountabilities and responsibilities are fragmented and dispersed across the health system, as indicated by the number of witnesses we had to call to answer for what happened at Hinchingbrooke. The Department's Finance Director accepted that he was ultimately accountable for approving the contract.

However, the officials in the Strategic Health Authority who developed the franchise arrangement have not been held to account; the Chief Executive received a generous redundancy package and has since taken up another role in the health service. The NHS Trust Development Authority, which was tasked with monitoring progress, did not oversee this high risk venture effectively. Hinchingbrooke itself had unusual governance arrangements, including a small board of three non-executive directors. However, neither Circle’s management nor the Trust board accepted responsibility for holding the Trust’s management to account. The Department acknowledged that aspects of the accountability model for Hinchingbrooke appeared to be 'a little muddled'.

Recommendation: The Department and the NHS Trust Development Authority should ensure that strong governance and clear accountabilities are put in place for future novel or high-risk ventures, and that there is strong and effective monitoring.

The continuing dispute about the findings of the Care Quality Commission’s recent inspection, coupled with the ongoing discussions about ending the franchise, risk distracting the Trust from continuing to improve the care it provides. The Care Quality Commission inspected the Trust in September 2014 with a team of around 30 people, and gave the Trust an overall rating of 'inadequate'. It had particular concerns about A&E and medical care, while critical care, maternity and outpatients were judged as good. The Trust and Circle have challenged the Commission’s assessment, although Circle has acknowledged that Hinchingbrooke did have areas to improve. The Trust told us that it raised 300 points of accuracy on the draft inspection report and that the Commission accepted 65% of these before the report was finalised. The Commission stands by the findings in its report. It re-inspected the Trust in January 2015 and found that improvements had been made, although there was more to do in relation to the A&E department. Circle expects to hand back responsibility for running the Trust to the NHS by the end of March 2015.

Recommendation: It is important that the Trust does not lose focus on continuing to improve the quality of its care, and we look to the NHS Trust Development Authority to take an active role in ensuring that this does not happen, particularly during the expected transition from Circle to the NHS.

The contradictory assessments of the quality of care at Hinchingbrooke risk confusing commissioners, the public and others about the actual quality of care being provided. The Care Quality Commission reported in January 2015 that overall it rated the Trust as 'inadequate'. We were not given a satisfactory explanation as to why the inspection rating was so out of line with previous assessments of the quality of care at the hospital. The Trust had won an award in May 2014 for care quality and, prior to the inspection, the Commission’s own 'intelligent monitoring system' had assessed the Trust as low risk.

The Care Quality Commission told us that, of 49 inspections undertaken, 21 were not in line with the ratings suggested in the monitoring system. Cambridgeshire and Peterborough Clinical Commissioning Group had limited resources for monitoring the Trust’s performance but its view had also been that performance was reasonably good, although it had had some areas of concern. The Clinical Commissioning Group told us that it accepts the Care Quality Commission’s findings and is working with the Trust to rectify the issues raised. The NHS Trust Development Authority also monitored aspects of care quality, such as waiting times and outcome measures, and considered that on the whole performance against these did not indicate a particular problem.

Recommendation: Once the first full round of inspections of hospital trusts has been completed at the end of 2015, the Department and the Care Quality Commission should evaluate the effectiveness of different approaches to monitoring quality and clarify the roles of the different bodies involved. In particular, it should examine whether its monitoring system is resulting in sufficiently accurate ratings.

We are concerned that lessons on awarding and managing major contracts will not be learnt from this innovative, but ultimately unsuccessful, venture. The Department was embarking on an innovative model in Hinchingbrooke. However it did not put sufficient controls in place to monitor and learn from this innovation. Circle itself told us that trusts could learn from the experience of Hinchingbrooke. The Department reported that no trusts are currently considering an operating franchise model, but we note that the NHS continues to award major, high value contracts. For example, Cambridgeshire and Peterborough Clinical Commissioning Group told us that it had tendered an £800 million contract for older people and adult community services in the last 18 months. As we have reported before, public bodies will not achieve value for money from their contracts until they become more commercially skilled; both in letting contracts in the first place, but also in ongoing contract management.

Recommendation: The Department should report back to our successors at the start of the next Parliament on what lessons have been learnt from the Hinchingbrooke franchise, which will inform future protocols in dealing with private providers, including on how to assess and manage risks in major contracts. It should also set out how it will communicate these lessons across the health system and explain what steps it is taking to develop the necessary skills within the service required to award and manage contracts.

Further information

• PAC report: Department of Health: The Franchising of Hinchingbrooke Health Care NHS Trust and Peterborough and Stamford NHS Foundation Trust, February 2013
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