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Circle Health: bringing social enterprise into disrepute?

Roger Kline and Brendan Martin, 22 October 2012

Like Public World, Circle Health is a member of Social Enterprise UK. Unlike Public World, Circle Health is owned by a hedge fund. Social enterprises are not defined by their ownership structures, but they are supposed to give priority to social outcome, while being viable businesses. Recent developments in its 10-year franchise to run Hinchingbrooke Health Care Trust in eastern England -- the first NHS district general hospital to be managed by the private sector – suggest it might not pass that test.

Whatever else Circle Health is or is not good at, its PR cannot be faulted. The company has successfully positioned itself as the British government’s favourite private sector healthcare provider. Its model has been repeatedly quoted by ministers and dazzled reporters. It has been widely praised in the media for “turning around” Hinchingbrooke since taking it over earlier this year.

In a presentation to investors, it identified 32 other trusts it viewed as constituting an “NHS growth opportunity” of more than £8bn. Circle Health proclaims: “We’ve always argued that our offering of entrepreneurial drive, an operating model that transfers power to the staff closest to patients, and leading experts from our partnership to coach staff, would make us a good strategic partner for many of them.”

Circle Health says it is a mutually owned business. Its 2,500 staff, including doctors, nurses, hospital managers, porters and cleaners, own 30 million shares. However, those shares are in an offshore firm called Circle Partnership, which is registered in the Virgin Islands tax haven and has only a minority investment of 49.9% in Circle Health. Moreover, the staff have no representation on Circle Health board, which is controlled by the four main hedge fund managers of Circle Holdings, who have given £1.4m to Britain’s ruling Conservative Party.

Public World is all about improving public outcomes through workplace democracy, and there is an increasingly well established link between ‘staff engagement’ and patient outcomes. Circle’s claims to be doing that at Hinchingbrooke appeared to be confirmed in May when the trust was rated joint top in the inaugural results of “friends and family” patient satisfaction test for East Midlands Trusts. Ali Parsa, Circle chief executive and ex Goldman Sachs banker, declared: “Circle’s partnership model and entrepreneurial drive offers an alternative to cuts and closure for struggling NHS hospitals across the country. We should be allowed to do more”.

He argued that “the results were a vindication for Circle’s partnership model, under which staff are encouraged to take an ‘entrepreneurial’ approach to improving the services that they provide”, and told the BBC in August that “the quality of the trust has become one of the best in the country in six months".

Less well reported was an article – online here, but unfortunately behind a pay wall -- that appeared just a week later in the British Medical Journal, which editorialised: “The argument for private companies taking over roles in healthcare formerly filled by the public sector is that they bring innovation and efficiencies. But the evidence in this week’s BMJ undermines that belief. Nigel Hawkes examines how Circle, a private company that took over a debt ridden public hospital in Huntingdon, is doing six months later. Financially it is not doing so well, but it has done a grand job on the public relations front, boasting lower waiting times and high approval ratings from patients. Hawkes wonders whether Circle has truly transformed the hospital or ‘merely restored its clinical performance to what it was before its financial problems became insupportable’.”

Even that would be an achievement of note – provided it is sustainable financially and has been done in a way that does not harm patient care. But there are real doubts in both respects. Circle Health has made pre-tax losses of 50% of its revenues for two years running, while the Health Service Journal reports: “Hinchingbrooke received widespread publicity when it scored joint-highest in the region’s first published set of results – for May 2012 – just two months after private firm Circle began its management franchise of the trust. However, the trust’s place in the rankings has been falling month-on-month since then. Eight trusts scored higher than Hinchingbrooke in June, 10 in July, and 19 in August. In August, Hinchingbrooke achieved …….. the average score for the region.”

More worrying still, nurses discovered in August that Circle was considering cutting 46 nursing and healthcare assistant posts at Hinchingbrooke after a review suggested it was more “generously” staffed than other hospitals. It is not clear how these proposals squared with Circle Health’s promise, when taking over the franchise, to increase the time nurses spent with patients. The proposed cuts would apparently come from saving costs on the shift overlap between early shifts and later day shifts.

The Royal College of Nursing protested that it is potentially hazardous to make savings on shift handovers, and that the lack of consultation flew in the face of the alleged “social enterprise” status of the trust. Circle responded that the need for “efficiency savings” had been identified by an “external review”, but that “as with all decisions taken under our partnership model, we’ll be consulting extensively on the new arrangements, and letting those closest to patients have their say on the best use of staff time in each area.” Fair enough, but if  'staff engagement' turns into a way of smoothing the implementation of decisions about which staff representatives believe they have been insufficiently consulted it could quickly lead to disillusionment.

Circle Health is certainly innovative, and its approach to staff engagement at ward level might well offer useful lessons to the NHS. But when Circle Health chief executive Ali Parsa says “the biggest challenge in healthcare today is about reengineering value”, we are entitled to wonder whether he means public or private value, and how the two can be reconciled in health care. Staff engagement is certainly crucial in the NHS, and social enterprises and mutuals could also have parts to play. But there is a danger that Circle’s stewardship at Hinchingbrooke could bring all three into disrepute.

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