Privately-owned Hinchingbrooke hospital is £2m more than planned in the red, according to the National Audit Office (NAO).
Circle, the first private sector company to assume the management functions of an NHS Trust, reported the Trust had an in-year deficit of £4.1m in September 2012 – £2.2m higher than the company had projected at that point.
Looking ahead to March 2013, the company has forecasted a deficit of £3.5m, three times the planned amount.
The NAO notes while Circle has made early improvements in some clinical areas, a number of financial challenges remain.
Amyas Morse, head of the NAO, said it is “important” to learn from the lessons from this procurement process before any more agreements with the private sector “of this kind” are made in the NHS.
Margaret Hodge MP, chair of the Committee of Public Accounts, said she was “astonished” by Circle’s contract arrangements.
“Before handing Circle the contract, the Strategic Health Authority failed to test properly whether the required savings are even achievable,” she said.
“Above all, I am astonished that the contract allows Circle to pocket any profit ahead of addressing the Trust’s deficit. Worse still, Circle suffers no penalty if at the end of the ten years the deficit is not paid off in full.
“To safeguard the future of Hinchingbrooke, the new Trust Board needs to put in place effective governance arrangements, such as a franchise risk register, to protect the Trust from unexpected problems. Carelessly, these arrangements were not written clearly into the contract.
“My Committee will want the Department to learn the lessons from these mistakes before agreeing any further franchise deals.”
Circle plans to achieve £311m in projected savings over ten years – the majority of which is expected to be made in the later years of the contract.
The NAO claims this is “unprecedented” as a percentage of annual turnover in the NHS.
Circle will fail to earn a penny of their £31m projected franchise fee over the 10-year life of the franchise unless the Trust achieves a surplus under its management.
However, Ali Parsa CEO of Circle, said he is confident the Trust will overcome its financial challenges.
“Having overcome the quality issues facing the hospital, we have little doubt that our partners in Hinchingbrooke will overcome the financial challenges too, and next year break-even for the first time in years,” said Parsa.
“Not bad for a hospital that faced closure and was written off as a ‘clinical and financial basket-case’.”