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Editorial Thursday 10 November 2011: Circle's 10-year Hinchingbrooke franchise may be terminated at SHA's will

- Hinchingbrooke franchise agreement "may be terminated at will by the Strategic Health Authority"
- Previous NHS management franchise at Good Hope quadrupled the trust's deficit

The courtship has been an extended one, but HM Treasury has given Circle permission to do the decent thing and make an honest woman of Hinchingbrooke NHS hospital - for the next decade, at least.

In sickness and in financial health? Mmmm.


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Marriage is the wrong metaphor, really. This is a leasehold deal.

Circle's press release is here, and NHS Midlands And East SHA cluster's is here.

On 1 February 2012, Circle will take over the management of the trust "via an innovative franchise agreement. This arrangement ensures that a full range of high quality acute hospital services - including accident and emergency and maternity services - will continue to be provided for local people at Hinchingbrooke, as agreed at the end of the 2007 public consultation, for as long as commissioners request it", according to  the SHA press release.

The SHA press release adds that "under the contract, staff and assets will remain within the NHS, and patients will continue to receive NHS services". Chartered accountant Mike Burrows is chair-designate.

Health Investor reports that "Should the hospital fall into deficit, Circle has agreed to make working capital contributions of up to £5 million. The contract allows either party to terminate if the trust incurs more than this £5 million in aggregate deficits, at which point Circle is also required to pay a further £2 million termination fee to Hinchingbrooke - Circle’s liability under the contract is capped at £7 million.

"The company will manage an estimated £1 billion of revenue over the 10 year contract period, but the contract can also be terminated at any time on a “no cause” basis. In such an event, Circle would be compensated up to a capped amount".

The Good Hope management franchise
This will be an interesting experiment. As I wrote in one of the very first pieces on Health Policy Insight, the NHS has previously franchised management, that of Good Hope to Tribal.

It failed and was cancelled early, as this written answer in Hansard reveals: "Birmingham and The Black Country strategic health authority reports that the board of Good Hope Hospital National Health Service Trust reviewed its strategic objectives in conjunction with its franchise partner, Tribal Secta ... the contract with Tribal Secta, which was scheduled to run until August 2006, was therefore terminated by mutual agreement eight months early to facilitate the trust's new strategic objective of achieving foundation trust status".

Good Hope's deficit had increased from £839,000 to £3,576,000 over the period of the franchise.

This review for Eastern Birmingham PPI Forum makes clear: "The contract was terminated early in December 2005. The PricewaterhouseCoopers financial review states that a review of the franchise agreement with Tribal has been undertaken by external audit. Although unseen by PwC, it is “highly critical” of the arrangement".

Good Hope was taken over by Heart of England FT.

Circle Holdings, the majority shareholder in Circle with 50.1% of the company,  are currently carrying an operating loss of £34,971,000: the admissions document states that "reflect that the Group is in the build up phase of its operations".

The document's section on 'risk factors' also states that "the Hinchingbrooke franchise agreement ... may be terminated at will by the Strategic Health Authority (“SHA”)".

Dr Stephen Dunn
We asked Dr Stephen Dunn of NHS Midlands and East SHA what happens beyond April 2013, when SHAs are due to be abolished. Dr Dunn confirmed that "the NHS Provider Agency will take over the place of the SHA in the contract, which will otherwise remain unchanged. provider agency will take over from the SHA in the contract in April 2103. The NHS Provider Agency takes over responsibility for all NHS provider trusts as the NHS Commissioning Board will also then be fully established - so there remains a clear separation of commissioning and overseeing providers. The contracts will not change”.

So how does it work that the SHA can cancel the contract at will, as Circle’s ‘admissions document’ says? Dr Dunn says that the SHA “can’t cancel at will. There is a clear commitment for Circle to continue to provide services at Hinchingbrooke over the 10 years as long as commissioners want them to. If problems do arise, there are a set of contractual clauses for the SHA and the provider agency to use”.

This is being presented as the first NHS management franchise, but it isn’t – Good Hope was, and that ended badly. Why will it work this time?

Dr Dunn says, ”there are significant differences between this and Good Hope. We went through a highly competitive process, researching the best plans to take Hinchingbrooke forwards, as part of which we’ve worked with the best of the NHS and the private sector.

“We’ve identified in Circle a partner with plans to pay off all the debt. Threy’re very detailed plans, over 3,500 pages, which have been scrutinised by 54 people in our team - half of whom were clinicians.

“Another big difference was that Circle have full operational control, which Tribal Secta didn’t have at Good Hope. Circle will have the same operational control as NHS management, so real managerial freedoms will transfer to Circle. The plans have been carefully evaluated”.

Dr Dunn concludes, “it’s clearly different, and it’s hugely exciting. This deal has taken a long to be scrutinised by DH and HM Treasury as it’s so bold, but it offers clearly the best chance of creating sustainable services at Hinchingbroooke. We think it’s a bold and exciting move”.