NHS: Hinchingbrooke Hospital

Earl Howe Excerpts

Thursday 10th November 2011 Lords Chamber

[Baroness Thornton]

My Lords, I beg leave to ask a Question of which I have given private notice.

[The Parliamentary Under-Secretary of State, Department of Health (Earl Howe)]

My Lords, we do not know Circle's profit margin. I can, however, explain the basis on which Circle will be paid. Circle will effectively receive a success fee for bringing the trust into surplus and keeping it there. If Circle does not make the trust operate at a surplus, it will not receive any fee and it will lose money on the transaction. Circle will receive all surpluses up to the first £2 million of any year's surplus, and then a share of surpluses of more than £2 million to keep it incentivised to generate the further surpluses that the trust will retain.

[Baroness Thornton]

I thank the noble Earl for that comprehensive explanation of taxpayers’ money. The issues I want to address are ones of transparency in process and criteria. Will the Minister provide details—I do not expect them this morning—of the meetings and minutes of meetings between Ministers, civil servants and Circle Health Ltd, and meetings with Mark Simmonds, MP, who is a paid adviser to Circle and a former member of the Conservative Front Bench? How will the Department of Health know whether this is a good deal? I can see how we will know whether Circle has made a profit or not. What is the objective here? Will a clinical as well as a financial audit be built in, and will those results be made public? In other words, how will the taxpayer know whether this is a good deal?

[Earl Howe]

I will, of course, write to the noble Baroness with detailed answers to the first part of her question, which would take too long for me to answer now. I can say that this is a transfer of risk to the private sector. That is why it is a good deal. It is also a good deal in another sense, because patients will still have a hospital in Hinchingbrooke. This is a hospital that in common parlance could be described as a financial and clinical basket case. No NHS bidders were willing to take it on. When the previous Administration left office, only independent sector operators were in the frame to do so. We therefore knew at the last election that there would be an independent sector solution. I think that it is a win-win situation all round. It is good news for Hinchingbrooke patients, and I understand that under normal Freedom of Information Act rules the contract involved will be made available, subject to commercially confidential details being redacted.

[Baroness Jolly]

My Lords, will the Minister please tell the House who was consulted in making this decision and what sort of support was found among the local community and hospital staff?

[Earl Howe]

My Lords, there was extensive consultation, but the important point for my noble friend to understand is that this was a locally led process. Ministers—and, for that matter, civil servants in the department—were not involved in the decision process. The decision was made by the strategic health authority board and the recommendation then came to Ministers. However, I can tell my noble friend that support for this decision has been very widespread, not least among the medical community in the area.

[Lord Laming]

My Lords, will this hospital continue to provide the same range of facilities as it does now? I understand that it does not provide A&E, for example, but will it be given the freedom to reduce the range of services in the future or will it have to carry on with the same services that it provides now?

--- Later in debate ---

[Earl Howe]

My Lords, as part of the franchise, Circle is committed to maintaining the current level of services, including accident and emergency and maternity services, as long as commissioners continue to purchase them for local patients—a commitment made following a consultation in 2007. Any proposals for a significant change to the services provided at the hospital will be subject to public consultation, as with any NHS hospital.

[Baroness Knight of Collingtree]

My Lords, am I correct in deducing from what my noble friend has said that the choice was either no easy future for this hospital or the course that is now being adopted?

[Earl Howe]

My Lords, so serious were the problems of Hinchingbrooke, both clinically and financially, that frankly the alternative to a franchising solution might have been closure of the hospital. I think that Ministers in the previous Administration reached that conclusion. It is one of the largest accumulated deficits that we have ever seen in any hospital. The problems facing Hinchingbrooke are therefore very significant.

[Lord Beecham]

My Lords, given the number of trusts that are in financial difficulties, can the Minister indicate whether he anticipates any further moves of this kind? If so, what processes would the department wish to see in place to ensure both value for money for the taxpayer and the highest possible clinical standards after any such transfer of responsibility?

[Earl Howe]

My Lords, we do not envisage any other solution of this kind in any other trust. Of course, close monitoring will be necessary, and the contract with Circle is very clear in this instance—it has to perform according to the specification. As I said earlier, if it does not turn the hospital around, the financial risk up to £5 million of deficit, cumulatively, lies with it. I believe that this is extremely advantageous for the taxpayer. On the clinical side, of course the CQC will be extremely concerned to ensure that quality of care is not just turned round but significantly improved.

[Baroness Finlay of Llandaff]

My Lords, can the Minister tell us how often Circle is reporting to the CQC on the clinical outcomes, given that there have been clinical problems at this hospital, how often it is reporting on the financial turnaround and to whom it is reporting?

[Earl Howe]

No, I cannot, but I shall write to the noble Baroness.

[Lord Avebury]

My Lords, if it is this easy for a private company to make the necessary economies to put this hospital back on course without compromising patient care, as was claimed by the spokesman on the “Today” programme this morning, can the noble Lord say why—a question that was not answered on that programme—the NHS could not make those economies itself?

--- Later in debate ---

[Earl Howe]

The previous Government tried very hard to put an NHS solution in place. As I mentioned, by the time they left office no NHS provider was willing to step in and say that it was capable of turning Hinchingbrooke around—the problems were that serious. Given that situation, an independent sector solution was the only one on the table.

[Lord Haskel]

I do not want to sound like a penny-pinching accountant, but exactly how do you work out profit on a hospital? How do you work out a surplus? What about capital expenditure? What about depreciation? What about all these other things that are involved? Have all these things been worked out?

[Earl Howe]

They have, my Lords, but the best way of answering the detail of the noble Lord’s question is to say that I will send him as much detail as possible from the contract, which factors in all the matters to which he referred.

[Lord Woolmer of Leeds]

My Lords, the Minister referred to an accumulated deficit. What is that deficit at this point? Will the contract require the new providers to ensure that that accumulated deficit is, over the years, paid off, or is it to be written off at the point at which the new provider takes over?

[Earl Howe]

The accumulated deficit is approximately £39 million; part of the arrangement specifies that Circle will work towards paying off that deficit over the 10 years of the contract.

[Lord MacKenzie of Culkein]

I understood the chief executive officer of Circle Health Ltd to say on television this morning that his organisation was a social enterprise on the Waitrose model. My understanding of Waitrose is that all employees are partners and that profits are either paid back to the partners or reinvested in the company. Is that the situation with Circle Health Ltd?

[Earl Howe]

My advice is that Circle is part-owned by its employees; more than 50 per cent is owned by them. The remaining share of the ownership is by private sector investors.