House of Commons - An update on Hinchingbrooke Health Care NHS Trust

An update on Hinchingbrooke Health Care NHS Trust - Public Accounts Contents

1 Operation and oversight of the franchise

1. Following a report by the Comptroller and Auditor General in November 2012[1] and our subsequent report in February 2013[2], we held a follow-up session on Hinchingbrooke Health Care NHS Trust (the Trust). We took evidence from the Department of Health (the Department), the NHS Trust Development Authority, the Trust itself, Circle, the Care Quality Commission, and Cambridgeshire and Peterborough Clinical Commissioning Group.

2. 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.[3] In 2007, 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, an employee co-owned organisation with just under 3,000 partners, a 10-year operating franchise.[4]

3. In February 2012, Circle took operational control of the Trust, becoming the first private company to run an NHS hospital. In January 2015, some three years into the 10-year operating franchise, Circle announced that it had entered into discussions with the NHS Trust Development Authority with a view to withdrawing from the contract.[5] Circle told us that all parties were working towards formal responsibility for running the Trust being handed back to the NHS by the end of March 2015.[6]

4. 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 franchise agreement, and ensuring that safe and high-quality NHS services are provided to the public. The Trust's chief executive is responsible for the day-to-day running of the hospital and reports directly to Circle. The Trust board is responsible for monitoring performance against the franchise agreement.[7] Cambridgeshire and Peterborough Clinical Commissioning Group is the Trust's lead commissioner and monitors its clinical performance. At national level, the NHS Trust Development Authority, an arm's-length body of the Department, is responsible for ensuring that NHS trusts, including Hinchingbrooke, are well governed and financially sustainable; and the Care Quality Commission, the regulator of health and social care, is responsible for making sure that services meet quality and safety standards. The Department is ultimately responsible for establishing systems that protect health service users and taxpayers.

5. The Trust needed to make substantial savings to remain viable. The Comptroller and Auditor General's 2012 report concluded that Circle's projected savings of £311 million over ten years were unprecedented as a percentage of annual turnover in the NHS.[8] Despite accepting that the expected savings were at an unprecedented level and had not been fully specified by Circle, the Department told us at our evidence session in December 2012 that it expected the franchise to succeed.[9] In our subsequent report, we concluded that the savings projections were overly optimistic and unachievable, and expressed concern that Circle's bid had not been properly risk assessed.[10]

6. Circle told us that three factors underpinned its decision to withdraw from the contract. The first was the rising demand for healthcare that the hospital faced, which had included an 18% rise in A&E attendances, 25% increase in elective admissions and 11% increase in emergency admissions over the three years of the franchise. Second, income had not risen in line with activity, due to real-terms reductions in the tariff prices paid for healthcare and the imposition of financial penalties by Cambridgeshire and Peterborough Clinical Commissioning Group because the Trust had not met its contractual targets. The third reason Circle gave was that there was no immediate prospect of reform in the local health economy which would be needed to make the Trust sustainable.[11] The NHS Trust Development Authority agreed with Circle's analysis.[12]

7. In our 2013 report, we highlighted that, while some financial risk and demand risk had transferred to Circle, the NHS could never transfer the operational risk of running a hospital leaving the taxpayer exposed should the franchise fail.[13] The Department told us that, at the time of the evidence session, the taxpayer had not lost money. When the contract was agreed, Circle had to put £2 million into a security deposit account for the NHS Trust Development Authority to re-tender in the event of the contract being terminated. In addition, Circle was obliged to cover financial deficits of up to £5 million. However, the Department said that the taxpayer would have to cover the excess should the total deficit go above £5 million and the deficit is set to grow.[14]

8. In the first two years of the franchise Circle made payments totalling £4.8 million to cover the Trust's financial deficits. The Trust's board papers for January 2015 indicated that the deficit for the first nine months of 2014-15 was £7.5 million, and that the Trust had forecast an in-year deficit of between £7.7 million and £12.2 million by the end of the year, compared with a planned surplus of £2 million. The board papers also said that the Trust had applied to the NHS Trust Development Authority for £9.6 million of funding.[15]

9. Responsibility and accountability for what happened at Hinchingbrooke is hugely difficult to pin down, and we needed to call six witnesses to get the full picture. The Department's Director of Finance explained that the contract had been reviewed by HM Treasury but accepted that he was ultimately accountable for approving it.[16] The East of England Strategic Health Authority, which was abolished as part of the reforms to the health system in 2013, evaluated the franchise bids and awarded the contract. However, we note that its officials have not been held to account. The witnesses told us that the Strategic Health Authority's previous chief executive, Sir Neil McKay received a redundancy payment and had since been re-employed by the NHS on a consultancy basis.[17]

10. We asked the Department what expertise and exemplars it had used to help draw up the franchise. The Department said that the Strategic Health Authority had drawn on external financial and legal advisers during the course of the bid process. The Department's note provided after the evidence session highlighted that Hinchingbrooke was the first contract for a management franchise and there were no like for like examples in this country. It had no record of the Strategic Health Authority drawing on examples of similar hospitals in Europe or the United States.[18]

11. In response to our 2013 report, the Department said that the NHS Trust Development Authority would monitor progress and take action if the Trust failed to deliver its plan.[19] The NHS Trust Development Authority explained that it had different monitoring arrangements and ways of intervening at Hinchingbrooke, compared with other NHS trusts, because of its unconventional board structure (consisting of only three non-executive members) and the fact that day-to-day operational management had been contracted to Circle. The NHS Trust Development Authority accepted, however, that these differences did not change its fundamental duty to monitor the Trust.[20]

12. In January 2015, the Care Quality Commission reported that both the Circle management team and the Trust board thought that the other was responsible for holding the Trust's executive team to account, and that the governance systems in place were not sufficiently robust. The NHS Trust Development Authority accepted that the governance, in terms of its responsibilities and the role of the Trust board, was confusing and too complicated, and the Department also said that aspects of the model of accountability appeared to be 'a little muddled'.[21]

13. Circle told us that other trusts could learn from the experience of Hinchingbrooke as they sought to improve quality and efficiency. Specifically, its view was that, by engaging staff and putting doctors and nurses in charge, the Trust had transformed quality and delivered above average efficiencies compared with the rest of the NHS.[22] It told us that the Trust had made annual savings of 5% over the three years of the franchise.[23]

14. The Department and the NHS Trust Development Authority said that there were currently no plans for further franchise arrangements in the NHS. The Department did not expect there to be any more franchising until the issues that had arisen at Hinchingbrooke had been resolved. Cambridgeshire and Peterborough Clinical Commissioning Group told us that, in the last 18 months, it had tendered a contract worth £800 million for older people and adult community services.[24] The Comptroller and Auditor General has reported that the NHS as a whole has contracts worth billions of pounds in total each year.[25] We have previously reported on how 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, and also in ongoing contract management.[26]

1 C&AG's Report, The franchising of Hinchingbrooke Health Care NHS Trust, Session 2012-13, HC 628, 8 November 2012 Back

2 Committee of Public Accounts, Department of Health: The Franchising of Hinchingbrooke Health Care NHS Trust and Peterborough and Stamford Hospitals NHS Foundation Trust, Twenty-eighth Report of Session 2012-13, HC 789, 7 February 2013 Back

3 C&AG's Report, para 3.14; Hinchingbrooke Health Care NHS Trust, Annual Report and Accounts 2013/14, 2014 Back

4 C&AG's Report, para 3; Circle Holdings, Annual Report and financial statements 2013, 2014 Back

5 Circle, A statement on Hinchingbrooke, 9 January 2015 Back

6 Q 125 Back

7 C&AG's Report, paras 3.2-3.5 Back

8 C&AG's Report, paras 10 and 2.10 Back

9 Qq 1-2 Back

10 Committee of Public Accounts, Department of Health: The Franchising of Hinchingbrooke Health Care NHS Trust and Peterborough and Stamford Hospitals NHS Foundation Trust, para 16 Back

11 Qq 23-25 Back

12 Qq 1-7 Back