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

2  Lessons learned

11.  Hinchingbrooke Health Care NHS Trust has been in financial difficulty for many years, accruing a deficit of around £39 million between 2004-05 and 2007-08. Following the start of the franchise in February 2012 there have been signs of clinical improvement but by October 2012 the Trust had an in-year deficit of around £3.8 million, which was £2.6 million worse than planned.[16]

12.  The SHA acknowledged that the financial position so far is not what it or Circle would have wanted. The Department says it is confident thatthe financial performance of the hospital will improve over the course of the franchise agreement, but early savings targets have been missed and they will become harder to achieve as the programme continues. The Department believes that Hinchingbrooke may not be able to repay all of the £40 million Public Dividend Capital it lent the Trust to cover its historic deficit, but expects that the organisation will be financially viable.[17]

13.  When Circle took over the operation of Hinchingbrooke it was making a loss of around £1 million a month. Circle achieved a surplus of around £400,000 in October 2012. However, the National Audit Office noted, that while a surplus had been achieved by the Trust in October 2012, the overall position had deteriorated by a further £500,000 that month against Circle's year to date plan because it had not delivered the expected level of savings. The National Audit Office also noted that financial performance is generally better in October for most NHS acute trusts because more elective work is undertaken that month than in others. Circle's view was that there was no reason to say how well or badly they were performing as it was too early for an assessment, despite its public claims of success.[18]

14.  In order to assess the success or failure of the franchise agreement at Hinchingbrooke there must be clear performance measures. Currently, the Department of Health, the SHA, the Treasury, the Trust board and Circle all seem to have different views on what success will look like. Circle described its measure of success as keeping the hospital open and improving the quality to be among the best in the country. The SHA stated that the goal of the franchise was to maintain and develop the hospital and its services whilst ensuring safety and quality, and to contribute towards reducing the debt that the hospital's predecessors had accrued.[19]

15.  There was a poor assessment of risk in both business cases for Hinchingbrooke and Peterborough and Stamford. The unprecedented scale of savings required to remove the deficit from Hinchingbrooke was not risk assessed properly. During the final bidding process both bidders made a full and final offer that promised much more than their previous bids; Circle increased the projected savings by over 25% to £311 million over ten years, which is an unprecedented amount within the NHS. As the increased financial risk was transferred to the franchisee, the SHA did not consider it necessary to fully risk assess the additional savings. Indeed, the bidders risk assessed their own bids and, as the National Audit Office stated, the level of financial risk built into the bids was not taken into account by the SHA. Instead, the SHA took advice from clinicians, who looked at the detailed proposals and advised the SHA on whether they looked clinically feasible. Although some demand and financial risk has been transferred to the franchisee, if Circle fails the risk and cost above £5 million will fall on the NHS.[20]

16.  When assessing the affordability of the PFI scheme the Department compared the unitary payment to projected turnover, and judged that the Trust could pay 15% of its projected turnover for the new building. The Department could not provide the National Audit Office with robust evidence for the basis of this figure. The Department has now changed this percentage considered affordable to 12.5%, including for the first time the whole of a Trust's estate and managed equipment services. They also informed us that now they not only look at the ten-year cash flow income projections, but also look in much more detail at years one and two and also review workforce projections post by post.[21]

17.  While Monitor expressed concerns at the time about the affordability of the PFI deal, the Department placed too much reliance on the Trust board, including accepting at face value their assurance that they had addressed the concerns of Monitor. The Department also gave undue weight to the huge effort that had gone into developing the scheme and to the hospital's dissatisfaction with its existing facilities. The Department told us that a similar decision on a major capital deal would not now be taken without the agreement of Monitor.[22]

18.  The Department could not explain why it had ignored independent expertise flagging a significant risk in relation to the land sale of the old Peterborough hospital site. In the original plan, £5 million per annum was due to be received as the trust entered into a joint venture for the land. The Trust now hopes to conclude a simple sale in 2013. Over a four year period around £800,000 has been paid in fees to the property advisors Jones Lang LaSalle without a sale being achieved. The Trust stated that future payments to Jones Lang LaSalle have now been capped.[23]

19.  In 2011-12, the Peterborough and Stamford Hospitals NHS Foundation Trust had 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. The Trust explained that there had been a massive change in the activity profile of the Trust over the last five years. This had led to huge differences between the actual growth in activity over the last five years and the growth on which the business case had been based. In many areas the Trust had had to recruit substantially greater numbers of staff. The Trust also failed to foresee increases in the unitary payment for the PFI caused by changes and variations to the service they require. The Trust has recently introduced some measures to tighten the management of the PFI contract. For example, for this year it has managed to take out £600,000 in relation to insurance costs.[24]

20.  There was an absolute failure to undertake proper due diligence on the decision for the Peterborough PFI. The Department has admitted that there was a catalogue of failures which have caused the financial problems at Peterborough and Stamford Hospitals NHS Foundation Trust, and that it was "not happy" to be paying out nearly £1 million a week of taxpayer's money to help keep the Trust going.[25]

16   Qq 4, 29-34, 52; C&AG's Report, The franchising of Hinchingbrooke Health Care NHS Trust, Session 2012-13, HC 628, para 1. Back

17   Qq 45, 98-99, 102 Back

18   Qq 4, 28-34, 36 Back

19   Qq 38, 45 Back

20   Qq 100-110, 131-132, 137; C&AG's Report, The franchising of Hinchingbrooke Health Care NHS Trust, Session 2012-13, HC 628, paras 2.6, 2.10, 9. Back

21   Qq 142-143, 197 Back

22   Qq 144-145, 167, 170, 202 Back

23   Qq 156, 161, 178-182 Back

24   Qq 186-192, 198; C&AG's Report, Peterborough and Stamford Hospitals NHS Foundation Trust, Session 2012-13, HC 658, paras 1.2, 2.1, Figure 3 Back

25   Qq 139, 172, 269 Back

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© Parliamentary copyright 2013
Prepared 7 February 2013