Circle Health Ltd

Circle is a healthcare company based in Britain, co-founded in 2004 by ex-investment banker Ali Parsa and Consultant Ophthalmologist Massoud Fouladi.^[1] It has independent hospitals near Bath and Reading, and an NHS Treatment Centre in Nottingham. In November 2011, it was awarded a contract to run Hinchingbrooke Hospital as a National Health Service (NHS) hospital franchised to an independent provider, and began the contract in February 2012.^[2] Circle's independent hospitals, CircleReading and CircleBath, also provide NHS care under the NHS Choose and Book scheme. Since the Health and Social Care Act 2012 came into force in April 2013 Circle has been the biggest private sector winner from the 195 contracts awarded with two contracts together worth £285.9m.^[3]

History

Circle was founded in 2004. Its publicity suggested it followed a governance model of John Lewis and the Toyota Manufacturing System, and it refers to itself as a "partnership". In fact, it has little effective voice for workers, and Circle Health Ltd is a limited liability company, incorporated under UK company law.^[4] Its private shareholders control the corporation. The flattened organisational structure is said to allow quality and efficiency to remain high, through the creation of ‘clinical units’.^[5] Speaking at Hinchingbrooke hospital, Francis Maude, the Cabinet Office Minister, described the Circle model as ‘a third option which goes beyond the monopoly of state provision or the private sector’.^[6]

Its claims to be a “John Lewis style social enterprise.” have been challenged by Prof Martin McKee who pointed out that "Staff shares amount to only 49% of the total number of shares, and the staff’s decision making powers are far less than even this suggests".^[7] The Guardian reported that it was funded by about £120m of investment from highly astute and profit-driven venture capital and hedge funds, and controlled by Circle Holdings, which became a publicly listed company following its flotation on Aim on 17 June 2011. Almost 95% of the shares remained in the hands of six investors.^[8] The company's plans were ambitious, encompassing the possibility of running 30 NHS trusts in time, and the shares peaked at £2.^[9]

After the announcement of the results of the Care Quality Commission inspection of Hinchingbrooke Hospital in January 2015 the Chief Executives of 19 NHS mutuals (all established under the Transforming Community Services programme) signed a letter to The Guardian protesting that David Owen had bracketed their organisations with Circle. They asserted that "Unlike Circle/Hinchingbrooke, most operate as social enterprises with explicit “for good” objectives, with surpluses going back into the organisation and the community."^[10]

According to John Lister "an undefined number of Hinchingbrooke employees will now (in 2014) be issued with an undefined number of shares in Circle Holdings, on an unclear and apparently arbitrary basis. They were not in charge before – and they are even less in charge now".^[11] It later appeared that staff ownership was cut to 25% after paying off £300 million in debts. 60% of shares are held externally by Toscafund Asset Management, Lansdowne Partners and Invesco, among others. Following the collapse of the Hinchinbrooke contract the share price collapsed. In January 2016 it was 22p.^[12]

The company made a loss of £11.7 million in 2015. In 2016 revenues increased 4.4% to £133.5 million, mostly from elective hospital work, giving a loss of £8.1 million. It plans to build a third hospital, in Birmingham. It has had a prime provider contract in Bedfordshire since 2014 and a £74m deal to oversee musculoskeletal services in Greenwich runs from April 2017.^[13]

The company operates an equity incentive program under which doctors are offered equity in the company in return for a share of the consultants’ private work.^[14]

Board members

The company announced in December 2012 that Ali Parsa had stepped down as Chief Executive. Steve Melton on an interim basis, assumed the position of Chief Executive, and now holds the position permanently. Ali Parsa will remain on the Board of Circle as Founder and a Non-Executive Director.^[15] Paolo Pieri is now chief executive.

Corporate Structure

Investors include ^[16]

• Odey Asset Management
• Lansdowne Partners
• Balderton Capital
• BlackRock
• Invesco Perpetual
• BlueCrest Capital Management
• Toscafund Asset Management

In June 2011 the company undertook a limited public offering with a listing on the Alternative Investment Market which raised £45 million, valuing the company at £95.4 million. In June 2012 it raised £47.5 million through a placing of shares with institutional investors.^[17]

It was reported in December 2013 that the company had secured £25 million of new funding and overhauled its corporate structure to grant its employees and NHS staff working at its sites direct access to its publicly traded shares.^[18] Circle Holdings, announced it is to acquire the rest of the company, currently in the hands of Circle Partnership, on behalf of employees. Circle employees and NHS staff are being offered shares in the company for free, providing they meet performance criteria.^[19]

The company has an operating arm - Circle Partnership - and an investor arm - Circle Holdings. Circle Holdings lends money to Circle Partnership to enable it to carry out the business, paying interest on the loan at 7%. Since 2004 Circle has bought sites for building new hospitals financed via the company Health Properties domiciled in Jersey.^[20]

In March 2017 Toscafund proposed to buy all the company shares, valuing the company at £74 million.^[21]

Centres

CircleBath

A private hospital that opened in 2010 at Peasedown St John, near Bath. It was described by The Observer as ‘One of the finest hospitals in Britain’.^[22] It reportedly made a loss of £2.7 million in the six-month period to 30 June 2013.^[18]

CircleReading

A private hospital that opened in August 2012 at Kennet Island, Reading. It reportedly made a loss of £3.4 million in the six-month period to 30 June 2013.^[18]

Nottingham NHS Treatment Centre

This is the largest Treatment Centre in Britain, operated by Circle since 2008. It reportedly made a profit of £4 million in the six-month period to 30 June 2013, up from £2.5 million for the same period the previous year.^[18] Circle won a dermatology contract from the Nottinghamshire Clinical Commissioning Groups in 2013 for services across the Centre and the Nottingham University Hospitals NHS Trust. Nottingham was previously regarded as a national centre of excellence for dermatology. In December 2014 it was announced that six of the eight consultants had left rather than transfer to Circle. It was suggested that the doctors were concerned over job stability at a private employer, and had fears that a profit-driven provider would not offer opportunities for academic research or training. The trust announced that it would stop providing acute dermatology services to new patients from February 2014. The President of the British Association of Dermatologists said this was "just one example of the many fires we are fighting across the UK to try to keep dermatology services open in the face of poorly thought-out commissioning decisions and the Government’s lack of understanding of the implications of pushing NHS services into unsustainable models provided by commercially driven private providers or enterprises,” ^[23] The exodus of doctors left a department with too few staff to function, and put Circle under "financial pressure" because they had to pay nearly £300,000 per year each for six locum doctors, some insufficiently qualified to be on the specialist register. A report, by Dr Chris Clough of Kings College Hospital, London, called for the trust, Circle and Rushcliffe Clinical Commissioning Group to work together to solve the problem.^[24] The handling of these changes by both commissioners and providers was described as an ‘unmitigated disaster'. The consultants had concerns about transferring “to an uncertain model at Circle”. The consultants said the company had no experience of the highly specialist work they provided and that this would “inevitably lead to a downscaling of their ability to deliver effective training and research”.^[25]

Circle Clinic Stratford

This clinic attached to a GP practice in Stratford on Avon was run by Circle Clinics Limited but in June 2014 it was announced that SWFT Clinical Services, a subsidiary of South Warwickshire NHS Foundation Trust, was to take it over as Circle had stopped providing services at the clinic in April to focus on inpatient services.^[26]

Hinchingbrooke Hospital

In November 2011, Circle won a 10-year contract to run the struggling NHS Hinchingbrooke Hospital.^[27] The hospital had previously been described as a ‘clinical and financial basket case’ by Health Minister Earl Howe.^[28] The hospital’s buildings and staff remained part of the NHS, but Circle took over all day-to-day management responsibilities.

The architect of the deal, Dr. Stephen Dunn, described it as "a good solution, focused on local needs. Without this deal, services might have been cut, the hospital might have had to close, or an £80m subsidy might have needed to support the existing management."^[29]

The Prime Minister’s former special advisor on health commented in the Daily Telegraph that these results had shown ‘the right kind of reform can turn around shoddy government monopolies and transform them into huge success stories’.^[30] However, during 2012 losses doubled, and Circle obtained a £4 million advance on fees to ease cash flow problems at the hospital.^[31] For the Conservative Party this was seen as a test case for private sector contracting.^[32]

Following the early successes at Hinchingbrooke, where it appeared the hospital had attracted some orthopaedic surgery from Addenbrookes Hospital^[33] Circle stated that they would like to bid for more NHS contracts.^[34]

In November 2012 a National Audit Office (NAO) report into the franchise was published. It found that while Circle had made early improvements in some clinical areas, the in-year deficit was already £2.2 million higher than planned. Circle will have to generate unprecedented levels of savings to pay the deficit and most of the savings are expected in the later years of the ten-year franchise, so the value for money of the project cannot easily be assessed for some time. The NAO found that while NHS East of England had assessed bidders’ savings proposals, the relative risks had not been fully considered, which had the potential to encourage over-optimistic bids.^[35][36]

In February 2013 The Health Service Journal reported that senior health figures were questioning the viability of using the model more widely in hospitals. They cited austerity and the need to reduce activity in hospitals as key drivers.^[37]

In December 2013 the company announced that it expected its Hinchingbrooke contract to finish at or near break-even by the end of its financial year.^[18] The Care Quality Commission had inspected the hospital and were satisfied. Waiting times in the A&E department were reported to be among the best in England and Dr Foster revealed the hospital has a “statistically significant low mortality rate”^[38]

In January 2014 it was reported that Circle could table a rescue bid for Peterborough and Stamford Hospitals NHS Foundation Trust involving partnering it with nearby Hinchingbrooke Hospital.^[39]

In January 2015 Circle announced that because Hinchingbrooke Hospital was "no longer [financially] viable under current terms" it wanted to withdraw from operating the hospital under the exit terms of the contract.^[40] Later the same day it was revealed that the Care Quality Commission had recommended the Trust should be placed into special measures after it was rated ‘inadequate’ on the questions of whether it was caring, safe and well led. They had concerns about the trust’s leadership because both the Circle management team and the trust board said that the other was responsible for holding the trust’s executive team to account. Circle's chief executive Steve Melton said before the report was published: “We understand their report will be published soon, and fully expect it to be unbalanced and to disagree with many of its conclusions".^[41]

References

External links

• Circle Partnership
• Hinchinbrooke Health Care
• Briefing on Circle by NHS for Sale