Circle £3.5m loan was SECOND in 10 months. What’s does that tell us?

I wrote a week ago about the £3.5m loan that Circle Health had asked for, and obtained, from the government in order to fund a capital investment programme at Hinchingbrooke hospital, the first NHS hospital to be taken over by a private company.

Circle, some of whose major shareholders are substantial contributors to Tory party funds, needed additional funding to carry out their planned investment – and unlike an NHS hospital that couldn’t meet its obligations, it received the requested cash rather than being placed into administration. 

That tells its own story. But it turns out that the £3.5m was not the first funding that Circle has requested and received from the government.

In October last year, the health company received an advance of £4 million from the NHS because of ‘cash flow issues’ – on top of a £46m cash injection it asked shareholders to stump up because of its £33m loss in 2011. Circle then lost £29m in 2012.

There are obvious conclusions to be drawn from this about the government’s belief – which persists in spite of the debacles of G4S and other companies – that private providers are somehow more efficient than publicly-run services. Though last week’s announcement that the NHS had to fork out £53m to buy back the Lister Surgicentre from Carillion after 3 patients died and several went needlessly blind must have laid that myth to rest in the mind of anyone not ideologically determined to ignore the obvious.

Circle needs to generate a ‘surplus’ of (or cut costs by) £70m over a 10-year period to break even on the debt it assumed when it took over Hinchingbrooke hospital, but the repeated requests for cash make the prospects of achieving that look exceedingly thin – and raise serious concerns about patient safety if it tries.

But while there is a clear hypocrisy in the the government providing cash injections to a private provider owned by Tory donors, the underlying lesson applies to private companies and true NHS hospitals alike:

Hospitals cost money – no matter who is running them – and the government is trying to run them ‘on the cheap’.

The government pays ‘tariffs’ to hospitals for different treatments, but these are inadequate to cover the true costs – especially for emergency care such as A&E, and for the treatment of the elderly and of people with chronic conditions.

This is the truth that lies behind the government’s decisions to close, downgrade or break up smaller NHS Trusts – and its targeting of others for ‘failure regimes‘ that Health Secretary Jeremy Hunt has already announced will end in closure.

By consolidating services into a small number of large centres the Tories – in spite of the known and obvious risks to the wellbeing of patients, are removing the inevitably-costly emergency services and chronic care from the equation in as many towns and areas as possible. This leaves the juicy, potentially-profitable conveyor-belt services like joint-replacements for private companies to provide.

The government’s decision to put Mid Staffs into administration and then to downgrade it, and the now legally-overturned decision to turn Lewisham’s university hospital into a ‘hip and knee replacement centre’, are clear indicators of its plan: turn as much of the NHS as possible into ‘profit-centres’ for its backers while concentrating the costly ‘loss-making’ (a nonsense concept in the NHS, as it costs what it costs) treatments into as few centres as possible.

But Circle are ‘letting the side down’ – at least as long as people recognise it. By trying to run a whole hospital, including chronic and emergency services, as a surplus-generating operation – and needing handouts to manage it – they are revealing a truth that is obvious to most of us but unpalatable to Hunt, Cameron and their fellow NHS-ideologues.

This government is subjecting the NHS to chronic underfunding that no one can cope with while breaking even, let alone making money.

The government, and its media pals, claim that the problems in the NHS are attributable to a ‘target culture’, or a ‘lack of compassion‘ on the part of healthcare professionals. But Francis, Keogh and others have found that it is caused overwhelmingly by one factor – understaffing, which is directly related to underfunding.

If the Circle situation is seen with open, objective eyes, it not only demonstrates the utter fallacy of the idea that private companies are more efficient in delivering crucial public services, but also gives the lie (as if it wasn’t already obvious) to the ridiculous claim that the Tory-led government ‘can be trusted with the NHS’.

29 responses to “Circle £3.5m loan was SECOND in 10 months. What’s does that tell us?

  1. Yes, private enterprise is much more efficient and effective than publicly owned and operated entities – we all know that don’t we?

    Well that is actually one astonishingly giant MYTH. If ever one needed proof that there is no truth to the myth, this account should be enough. Sadly, there are many, many more.

    However, not only do private entities fail, they often do so, as in this case, after taking substantial subsidies from the public purse and then leaving massive debts. Conversely, when public institutions are hit with unexpected increase in demand or emergency situations, they are most often told to cut in other areas, shed staff, or work harder. Rarely are they given additional funding.

    What’s worse about all this is that services such as health and education and transport are fundamental to our well-being and, as such, should not be run with a prime raisin d’aitre of making a profit. By definition, a health service should be aiming to put itself out of business – hardly an aim consistent with private enterprise which will seek to create extra and new business.

    One last issue that is significant in this quagmire situation is that when these privatised ex-public entities do go out of business with massive debts, their Ceo’s, directors & senior echelons seem not to lose at all but pop again, metaphorically, 5 minutes later, in another highly paid job where they are very likely to once more run the company into the ground. And, all the while, these losses are written off so that the tax take is negligible. – That, in my book, is corruption.

  2. Who really believes the nonsense about privates running things better? Surely what matters is that privates are in a position to lobby and bribe political parties which governments aren’t.

    The rest is just kool aid nonsense that usually falls apart at first inspection, certainly for key infrastructure and natural monopolies.

    Of course the fundamentalist drones churn out the lies, and the lamestream press repeat them. But they’ve been proven wrong so many times there’s no need for anyone of sense to listen, and an increasing amount don’t.

    The problem is so much demonstrating our case, but making the public aware of it. The lamestream don’t want to know – it involves numbers and stuff, they think it’s boring and that people are too stupid to understand. If it can’t be explained in 3 bullet points and 30 seconds it’s in the realm of lofty intellectuals. Does any mainstream interview last more than about 3 minutes?

    Look at PFI – about 20 years old and one of the biggest scams going. Ask 100 people to define it cogently and the problems with it. How many will succeed? 20 to 25? Why? Because it’s densely complex? Nope. Because they haven’t really been told.

    That’s the challenge then, and promoting solid alternative news sources and the need to take heed of them is a major solution.

    It’s possible, Though it has it’s obvious faults (i.e being a propaganda machine with just a different angle) Russia Today is gaining a vast amount of adherents, and it is BBC that is increasingly seen as a laughable Pravda operation.

  3. One more thing, that I will blog on separately at some point :

    When government indulges privatisation mania, apart from being corrupt it is the suicide of it’s own credibility.

    “Tch – look at us, we’re government and we’re shit – doh! We can’t run ANYTHING really. Vote for us”

    But they sell it with populist cover, and the dupes go “Yeah – wow – that sounds great because, like you’re saying politicians are shit. Yeah, man, politicians ARE shit so I’ll vote for you”.

    Anti politics politics is one of the biggest fraud out there, and the right is steeped in it.

  4. No one with any sense could believe that its possible to deliver the whole range of NHS services within a profit making model. Emergency care could never be profitable.We all pay for the NHS through NI and tax , its not free, just free at the point of use. A well run and well organised 100% publicly run system must surely be more cost effective than contracting out or selling off bits to private companies who price their services with profits factored into that price. The reason our NHS has been slowly dismantled since Thatcher is because successive governments have shrugged off their responsibilities towards the people they represent. They’ve shifted allegiance from the public interest and now effectively represent private interests. In order to get into power, though, they still have to convince us to vote for them and this requires them to tell us what are effectively lies. Of late they seem to be getting more and more blatant with these lies perhaps because they know that since there is no real ideological difference between the parties a change of government is not going to change things very much at all. The staggering number of MPs and Lords now with a personal investment in this state of affairs means that in effect democracy is a convenient illusion necessary to keep us docile enough not to challenge the system too far. I was so angry about this loan you told us about that I wrote to my Labour MP, David Crausby and cc’d the email to Andy Burnham, demanding they confronted Jeremy Hunt about it. I got an out of office reply from Andy Burham and a postcard from Crausby thanking me for my email. Experience has taught me that Crausby sends these postcards when I raise issues he doesn’t intend to pursue because when he has bothered and followed through I get a letter.The only conclusion I can draw from this is that the Labour party don’t intend to challenge the government on this issue presumably because they have no problem with it. Its very depressing.

  5. Is Circle still paying out dividends to shareholders on this deal? I’ll see if I can find the link later on today ( or you might know how this particular piece of financial shenanigans works, Steve) but it is perfectly possible for accompany to load an asset it has bought with debt, use the debt as a dodge for not paying tax, yet still make profits. It’s what private equity companies do all the time. It’s also how Starbucks has got away with not paying UK tax for so long. A global company can run its business in a high tax zone on ‘debt’ – then returns what are really its operating profits to a low tax zone in the form of ‘debt repayments’. In Circle’s case the mechanism may be slightly different, but I wonder if the end result is the same. After all the banking bailout didn’t seem to affect the profits paid out to bankers, did it, despite their profitability being non existent on paper.

  6. Correct me if I’m wrong but I think Circle (as opposed to Serca, Virgin Health etc) is an employee-owned private equity company without shareholders i.e. can borrow on the open market and make surpluses but no dividends (except, I suppose, to the staff).
    This does not, however, negate the central point, which is entirely correct that it is a total myth that private organisations are intrinsically more efficient or effective, especially in the provision of public services (as opposed to the manufacture of widgets).
    Private companies can be effective and well managed or not, likewise public utilities/services. What is needed for optimal outcomes in the public sector is a core ethos, stability of structure, SENSIBLE management/administration and adequate funding. A seemingly impossible task currently, where we simply have a mad plan which was absent from the manifestos of both coalition parties.
    The problem with the marketisation of the NHS is that it’s run as a series of “business units” but these units can’t set the price. Hence the cooked-up concept of public sector organisations going into administration.
    The public have never been given the opportunity in the relevant areas to weigh up whether they would pay the additional price, say via the Community Charge, of local secondary care services (feasible ones, obviously) if they are in an “unlucky” geographical location. Almost certainly they would, because of the extra costs to themselves of distant care if they are ill and what they would forego in terms of reassurance for themselves, their families, friends, neighbours and fellow citizens, especially the elderly (I include these latter categories because ordinary people are much more ultruistic than they are given credit for – take charitable giving as a percentage of income as an example).
    If you trace the actions of governments (of both persuasions alas, though the attitude is heavily skewed) over the last 30 years you will not find a coherent policy, simply a series of actions that preserved the NHS more-or-less but ENABLED privatisation (and hence shedding of responsibility) at an unspecified time in the future.
    What this really shows is that in terms of a real connection with the problems of ordinary people, a willingness to have a vision, take responsibility for it and work their socks off to make it happen without regard to personal gain, the current generation of politicians and their hangers-on couldn’t hold a candle to Clement Atlee, Nye Bevan, Herbert Morrison ……. Have we really sunk so low?

  7. Pingback: Circle – Would You Trust Them to Run Weston General Hospital? Update | Protect Our NHS·

  8. Dear NHS worker, can I say in answer to your final paragraph, yes, we really have sunk so low. In answer to your question about whether Circle is an employee owned, not for profit, social enterprise, may I refer you to the link I have posted above to ‘corporate watch’. It partly answers the really interesting question, ‘when is a social enterprise not a social enterprise?’. I’d add, as well, that i think it’s highly unlikely that Circle or Virgin are in the least bit interested in investing in health provision in the long term – those who get in first at the Government sale stage get quick profits, short term and tend to sell on once the market is completely open. It may be different with Serco. It’s the American companies who follow after the EU/US free trade agreement who will ratchet up prices and make serious long term profits out of the business. By that time there’ll be no public sector left to make a stand against it.

    • I agree with all you say and imply but I had heard that Circle don’t have shareholders so I wondered whether the imperative much beloved of private companies, that they are always obliged to put the benefit to shareholders first, applied in the same way. As I said above, I don’t think this affects the material point Steve is making.

  9. The point is that Circle – aptly named – has companies, which are part of companies, which are part of companies, in ever decreasing circles. The ‘social enterprise’ part is minor and appears to be more designed to fulfill an agenda than to have any relationship with the idea of employee owned non profit making socially conscious enterprise. For example the hospital was built by a non-social enterprise company within the group who gets £3.5m a year in rent from the ‘social enterprise’ arm. This just diverts public money by a different route into private hands. The social enterprise itself does not have to be wholly owned by its employees and there is no FOI covering it to ensure that it does anyway.

    • Just read the link you provided. Illuminating but unsurprising, depressing. I suppose it’s similar to derivatives and complex bundling of sub-primes etc. It’s business-people being clever for their own benefit (and hang the consequences) because they can. This is not only an insult to public servants who generally do their best and more for a salary but also to most private employees who do a solid job and seek to serve the public in a pleasant manner. In both cases, the men in suits are having a laugh at their expense though the excesses in the corporate sector are becoming increasingly unbelievable and ethically very questionable (what a restrained person I am!)

  10. Sorry, NHS worker, there was also another point you made about the Community Charge (do you mean Council tax?) potentially being used to subsidise geographically ‘unlucky’ areas to provide local services, presumably to top up a lack of NHS provision. But this goes straight to the heart of the problem with the NHS carve up. Up to the implementation of the H&SC Act in April this year the Secretary of State for Health, whosoever that might have been, was directly responsible to Parliament for the provision of a national health service. The key word is national. So whether you lived in a poor area with its associated health costs or not didn’t matter. The national strategy accounted for those differences and allocated resources accordingly. Fast forward to the Clinical Commissioning Groups and they only have to provide for the needs of their local communities, and will be sourcing treatments increasingly from private providers whose ‘menu’ of services which can be paid for from the public purse will be limited. Steve refers to joint replacements, for example – very costly, pretty low risk- which will be strictly ‘elective’, ie will only be for those who can afford to pay or take out insurance. The disparity of health outcomes across the country, already noticeable, will become more and more marked. Increasing Council Tax in those areas to compensate for a failure of provision in primary and secondary care doesn’t solve the problem. If the area is really poor then there will be a high number of in or out of work benefit claimants who will either have to claim – thus creating an additional demand from a different central budget – or find it is not allowable as a claim and will have to fund it from their own limited resources.

  11. And one last thing? People are as mixed as they come, but despite the jobs worth’s, the wannabes and the lazy arses most people are decent. In the public and private sector, on a Zero Hours contract , average salary or even above it, I absolutely agree that overall people go out to work to do the best they can, for themselves, for their families, for their patients/customers/ clients. It’s our tragedy that there is a different class of people out there exploiting every opportunity to deprive us of the fruits of that labour and extract every last drop for themselves.

  12. Yes totally agree with all that Deborah is saying. Of course I wouldn’t run the NHS like this.
    The point I was making, Steve, is that HMG are going around the country intent on closing perfectly good local hospitals – on the pretext of “unaffordability” in one guise or another – there are lots of reasons to suppose that this is garbage BUT local people have never been asked if they would pay more (on a progressive taxation basis one would hope) – and the reason they haven’t been asked is because they would say yes.
    I’m not saying that would be fair or equitable but it would, at least, make the position clear. People DO value good local secondary care that has matured with the NHS and are NOT ambivalent about it – ask any ordinary person in their 80’s – they remember what it was like not to have it.

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  15. From inside Hinchingbrooke…. Circle appear to be in cash flow problems yet again…they are not paying bills…when staff phone suppliers they get the “when the bill get’s paid” answer…”you get your goods”…also some staff are not getting salary payments they are entitled to. Circle’s so called Pyramid structure in Hinchingbrooke which was supposed to reduce management (which initially it did…NHS wise) has now INCREASED with Circle management,,,,who haven’t a clue..

  16. Seems that Circle are now £3.75 million down says a source from inside where it was announced…. when they get to £5 million they are kicked off and Hinchingbrooke is back to the NHS… won’t be long

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