Department of Health: The Franchising of Hinchingbrooke Health Care NHS Trust and Peterborough and Stamford Hospitals NHS Foundation Trust - Public Accounts Committee Contents


A complete lack of strategic oversight resulted in separate decisions being taken to build a new PFI hospital at Peterborough and to award a franchise to a private company to run a nearby NHS hospital. No consideration appears to have been given to the impact these two decisions would have on the local health economy and health expenditure. The hospitals are located only 24 miles apart in the East of England, an area of the country where the NHS has a long-acknowledged over-provision of acute healthcare. The decision to approve these two deals flies in the face of past and present government policy to treat more people outside hospitals and to concentrate key services in specialist centres. This has left the Government with two hospitals whose financial viability and future is in doubt and whose value for money has not been secured.

The PFI hospital at Peterborough and Stamford Hospitals NHS Foundation Trust became fully operational in December 2010. By the end of 2011-12, the Trust had accumulated a deficit of £45.8 million on a turnover of £208 million. At 22%, this was the highest ratio of deficit to turnover in the NHS. Monitor's warnings about the affordability of this PFI deal, which has proved catastrophic for the Trust, were not acted on by the Trust, the East of England Strategic Health Authority (the SHA) or the Department of Health (the Department). The severity of the Trust's financial position was increased by weaknesses in its financial management but the warning signs of these failures were missed because Monitor was not sufficiently alert to the risks. The Trust's financial position is now so serious that, even if it achieves challenging annual savings, it will still require significant financial support of up to £26 million a year for the next 30 years to remain viable.

Hinchingbrooke Health Care NHS Trust is the first NHS trust to be run as an operating franchise. The deal was put in place after the Trust accumulated a deficit of £39 million between 2004-05 and 2007-08 on an annual income of around £73 million as a result of management errors and inaccurate income projections associated with the opening of a £22 million PFI treatment centre. The present financial position of the Trust and projections over its future income are such that it also needs to achieve substantial savings to remain viable. The franchisee, Circle Healthcare, aims to achieve savings of £311 million over the ten-year life of the franchise. The company has not achieved the savings it expected in the first few months of operation and it has already parted ways with its Chief Executive, only 6 months into the project. We are concerned that Circle's bid was not properly risk assessed and that Circle was encouraged to submit overly optimistic and unachievable savings projections. While some financial and demand risk has been transferred to Circle, the NHS can never transfer the operational risk of running a hospital leaving the taxpayer exposed should the franchise fail.

Neither Trust is financially sustainable in its current form and both will have to make unprecedented levels of savings to become viable. Events at both Trusts reflect poor financial management and the failure of the SHA to exercise strategic control over local healthcare provision and capacity planning. The poor oversight demonstrates that the Department has not established a robust system of healthcare planning. All bodies demonstrated an abject failure to accept responsibility for these decisions and their impact on the local health economy. But the local community will have to live with the consequences of these decisions for many years to come, as will the NHS and the taxpayer who will have to foot the bill.

On the basis of two Reports by the Comptroller and Auditor General,[1] we took evidence from the Department of Health, Monitor, Circle, and Peterborough and Stamford Hospitals NHS Foundation Trust on the franchising of Hinchingbrooke and the financial sustainability of Peterborough and Stamford.

1   C&AG's Report, The franchising of Hinchingbrooke Health Care Trust, Session 2012-13, HC 628; C&AG's Report, Peterborough and Stamford Hospitals NHS Foundation Trust, Session 2012-13, HC 658 Back

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© Parliamentary copyright 2013
Prepared 7 February 2013