ON SOME PRIVATE NHS PROVIDERS – DOSSIER TWO. Would you trust Circle Health with Weston General Hospital?

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July 4, 2013 by Protect Our NHS

If you were to take Circle Health’s corporate website at its face value you would believe that the company has a John Lewis ‘partnership’ employee structure where everything possible is injected into the new world of healthcare opening up in the UK, because according to them: “History has shown that wherever disruptive innovations invade mainstream markets, the result is lower cost, higher quality delivery.” Weasel words – weasel words! This is such a fundamentally misleading statement that it bears a little comment. Anyone with the smallest grasp of history could answer, yes, but the disruption caused by the innovations of ‘disruptive’ mechanisation during unregulated industrial revolutions, the Highland clearances, mining, logging, etc caused immense hardship to the landless, the poor, the unrepresented – and these are the very people whom the NHS is there to help. The NHS is not a ‘mainstream market’. It’s a service for us, the people of this country, which should be provided as efficiently and cost effectively as possible – which means that ‘for profit’ companies should not be taking desperately needed funds out to pay off private equity investors and shareholders and they shouldn’t be hiding behind half truths and pretending to be the John Lewis Partnership.

Good old Wikipedia plays along: “Circle was founded in 2004 as an employee co-owned hospital group, aiming to offer high quality healthcare efficiently, by focusing on the patient experience and clinical results, as well as implementing efficient operating process. In order to make their hospitals more productive, Circle has taken many examples from the Toyota Manufacturing System. (http://en.wikipedia.org/wiki/Circle_(healthcare_partnership/)”

The Toyota Manufacturing System!! Great – let’s just wait for the product recalls when they overreach themselves, shall we? I mean call me an old cynic if you want, but I feel that the truth may be somewhat, just a tad even, different. Perhaps we can learn more from their most recent published accounts for the year ending September 2011.

Annual turnover: £63,142,000.00
Annual profit: £-28,336,000.00

Turnover per employee: £167,930.85
Profit per employee: £-75,361.70

Look further: Number of staff: 376. Number of directors: 10 – that’s a lot. Directors’ remuneration: £454,000.00 – that’s not very much. Increase over last 2 years: 202.67% – that’s a lot. Highest paid director’s salary: £199,000.00 – well, there you go – yet another fat cat boss being rewarded for failure – or is he? Maybe there’s a long game being played here. You can skip to the end to see what if you want, but in the meantime, let’s go back to the beginning.

Circle’s history typifies the new entrants into the UK health “market”. So who owns what; when did they buy in and why? Originally it was a private company.

Company number: 05042771
Type of company: Private Limited Company
Country of origin: United Kingdom
Incorporation date: 12/02/2004
Status: Active
Previous names:
• CENTRES OF CLINICAL EXCELLENCE LIMITED/CIRCLE HEALTH LIMITED
• CLINICAL CENTRES OF EXCELLENCE LIMITED/CENTRES OF CLINICAL EXCELLENCE LIMITED

Take just one of the ‘previous names’: Centres of Clinical Excellence Limited was registered originally as a private healthcare group in the UK. In October 2005, The Guardian reported that the group was planning “to build a chain of private hospitals across England in partnership with hundreds of frustrated NHS consultants.” Frustrated??

The company was registered in February 2004 as “Clinical Centres of Excellence Limited”. It changed to the current name in October 2004. In the same month, a second company called “Centres of Clinical Excellence International Limited” was registered. There are at least five subsidiaries and two holding companies in the normal opaque structure we have become used to when analysing private health groups. The main holding company is Health Investment Holdings Ltd.

On 4th December 2009 European law firm Taylor Wessing LLP proudly announced that it had: “advised independent hospital operator Health Investment Holdings Limited (HIHL) on its latest round of successful fundraising, including a £20 million investment from leading fund managers BlackRock Investment Management (UK) Limited. This is the seventh round of financing that HIHL has completed in five years, with BlackRock joining Balderton Capital and BlueCrest. HIHL have now raised £100m of equity. HIHL is the fastest-growing independent hospital operator in the UK, running hospitals via Circle, a partnership between doctors, nurses and ancillary staff. Taylor Wessing advised HIHL during this latest fundraising process, helping to secure backing for the group’s ambitious plans to build 27 hi-tech new private hospitals in the UK.”

The Bureau of Investigative Journalism did the analysis of the whole tortuous route of the holdings in 2011 which in chart form looks like this:
Circle

(http://www.thebureauinvestigates.com/2011/06/05/private-healthcare-provider-to-go-public-despite-financial-woes/)

The Bureau went on to point out that: Circle’s corporate structure is far from the social enterprise model its publicity claims. Circle Health Ltd – the company that actually provides healthcare – is 50.1% owned by a company called Circle Holdings, with the other 49.9% owned by Circle Partnership. Circle Partnership is part-owned by Circle employees (the clinicians mind you, not the cleaners) and is the social enterprise part. But while this may mean some of its staff benefit when the company starts making a profit, as it is registered in the British Virgin Islands, these benefits will not be shared. Companies registered in the Caribbean island do not have to pay tax on dividends from investment in a UK company.

Companies registered in the British Virgin Islands do not have to make their accounts public – and Circle did not respond to Corporate Watch’s requests to see them (http://www.corporatewatch.org/?lid=4251) – so as Corporate Watch goes on to point out – and I quote their excellent work in detail here – means we cannot see exactly how much of the Circle Partnership is owned by its employees. “But Circle Holding’s financial statement shows that at least 10% of shares in Partnership are held by a company called Health Partners Limited, a “wholly owned subsidiary of Health Trust (Jersey), a family trust of which the Chief Executive Officer [Ali Parsa] is a beneficiary”, and which, as suggested, is registered in Jersey – another tax haven!

Health Trust also owns a share of Circle Holdings (again through Health Partners), which used to be incorporated and domiciled for tax purposes in Jersey. The £7m interest Circle Health was paying on a £67m loan it had taken from Holdings would therefore go back to Jersey. When it listed on the Alternative Investment Market in May 2011, raising £45m in the process, it also changed its residence for tax purposes to the UK. But as the major shareholders in Circle Holdings include the Jersey-registered Health Trust and five investment funds, three of which – Lansdowne UK Equity Fund, BlueCrest Venture Finance Master Fund Ltd and Odey European Inc – are registered in the virtually tax-free Cayman Islands, this move may not be as public-spirited as it may first appear.

In addition to this, money will leave the company through the ownership of its hospitals. Circle’s Bath hospital is owned by Health Properties Bath, another Jersey-registered company, which Circle pays £3.2m a year in rent. Health Properties turns out to be owned by Circle Holdings (39%) and Health Estates Fund Ltd (58%), a “related party property fund advised by the [Circle] Group”, which is also registered in Jersey. And, as a final reminder of Circle’s links to speculative finance, the remaining 3% is owned by Lehman Brothers, which originally loaned money to build the hospital.”

So we have a private company founded in 2004 which went public on the Alternative Investment Market (AIM) of the London Stock Exchange in 2011 and which owns / operates private hospitals in Bath and Reading and operates an NHS treatment centre in Nottingham and the Hinchingbrooke NHS hospital. And there, if not earlier, it starts to go wrong… On 8th November 2012 Amyas Morse, head of the National Audit Office (NAO), reported that:

“While Circle has made early improvements in some clinical areas, the company will have to generate savings at an unprecedented level. The final judgment on the value for money of the franchise will depend on how successfully Circle makes the projected savings and repays the cumulative deficit, while maintaining clinical quality…. This franchise agreement is the first of its kind in the NHS and it is important that lessons from this procurement process and early operational experience are used to improve future contracts.”

The NAO noted that the in-year deficit was £4.1 million by September 2012, which was £2.2 million higher than planned to that point. Most of the (required) savings are expected to be made 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 Authority had assessed bidders’ savings proposals, the relative risks had not been fully considered, which had the potential to encourage over-optimistic bids. The report also found that the Authority rejected a guaranteed payment towards the [Hinchingbrooke] Trust’s cumulative deficit in favour of an ambitious bid that aimed to repay the debt in full. The cumulative debt stood at £38 million (at the end of March 2012).

Margaret Hodge, chair of the Commons Public Accounts Committee, invited the Department of Health to “learn the lessons from the mistakes” involved in the deal with Circle before agreeing to any further franchise arrangements. “While there have been welcome clinical improvements, it is essential that pressure to make savings does not simply lead to cuts in services in future.”

We have seen from that chart above prepared by the Bureau of Investigative Journalism that Circle Holdings is the key company. Floated on AIM in 2011 its latest figures still don’t make for pretty reading.

Aim Interims

(Source: Alternative Investment Market, London Stock Exchange)

So why are its investors staying with it? Trading in its shares is light to non-existent. It is a long, long way from profitability and at least one of its hospitals operated at double its expected loss in 2011/2012.

For the answer to this we probably just need to step back and look at other ‘privatised’ sectors and see how the private companies operate there – rail franchises! There isn’t the space here to go into any detail, but a recent Guardian article about our own beloved First Great Western points the way to the future:

“Speculation that the DfT [Department for Transport] may be less inclined to settle cheaply with First [Great Western] has been fuelled by the politically toxic history of the Great Western franchise. First took up an option to walk away from the final years of its contract to avoid around £800m in premium payments to the government, yet has been left running the service after last year’s west coast fiasco meant the government could not meet its timetable for re-letting the franchise.

The RMT’s general secretary Bob Crow said:… First had “already soaked up over a billion pounds in taxpayer bailouts and dodged premiums in the past two years” and called for the route to be renationalised.” (http://www.guardian.co.uk/business/2013/jun/12/first-great-western-franchise-talks)

You don’t have to be a psychic to see what the future could be for Weston General Hospital, or Hinchingbrooke or George Elliot Hospital in Nuneaton, the three NHS hospitals up for grabs by the private sector. A few years of “improvements”, a bleat for more cash, blame being put on the nurses/unions/medical consultants and then we find that the company which had originally bid for the franchise has been bought up by yet another international (and probably American) company with the original directors picking up millions in share options and bonuses… and who picks up the bill? We do. And who suffers? The patients.

It’s happened before – look at Harmoni (now Care UK) – it will happen again.

Sources:

http://www.worksmart.org.uk
http://www.thebureauinvestigates.com/2011/06/05/private-healthcare-provider-to-go-public-despite-financial-woes/
http://www.corporatewatch.org/?lid=4251
http://www.londonstockexchange.com/exchange/prices-and-markets/stocks/summary/company-summary.html?fourWayKey=JE00B4V99J57JEGBXAMSM
http://www.guardian.co.uk/business/2013/jun/12/first-great-western-franchise-talks

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