MPs attack "catastrophic" NHS financing decisions in east of England

A new report from the Public Accounts Committee (PAC) criticises Department of Health (DoH) and local Strategic Health Authority (SHA) for deciding to build a new hospital in Peterborough at the same time as awarding a franchise to a private company to run nearby Hinchingbrooke Hospital. Neither hospital is "financially sustainable in its current form", according to the report.

"It is extraordinary that these decisions were taken separately despite the fact that the two hospitals are only 24 miles apart," said Stewart Jackson, a PAC member and MP for Peterborough. "This is in an area where the NHS has long acknowledged that healthcare provision is running ahead of local needs."

"None of the health bodies involved, including the Department, seems to have looked at the overall impact these decisions would have on the local health economy. The reality is that there is not enough funding there for both Trusts to thrive as currently configured. Their financial viability will be further eroded if more people are treated outside hospitals, in line with present and past government policy," he said.

Healthcare law expert Barry Francis of Pinsent Masons, the law firm behind Out-Law.com, said that the central issue highlighted by the report was unrelated to how the hospitals were managed.

"The report identified that there was too much capacity," he said. "This is not a function of whether a hospital is privately or traditionally owned and managed. It is an issue of planning for capacity needs and shifting care patterns."

"In some places it might be a question of the political courage to close or downgrade hospitals. Admittedly it is more complicated to do this when there is a long-term contract in place but if you have built or kept the wrong hospital in the wrong place there is always going to be a financial consequence," he said.

Circle Healthcare became the first private provider to take over an entire NHS hospital when it took on the management of Hinchingbrooke Hospital, Huntington in February 2012. Clinical and non-clinical services are now being provided by the NHS trust under Circle's management, while staff and assets remain with the NHS. The 10-year deal, worth £31m in franchise payments, has seen Circle assume responsibility for an estimated £39m debt and the financial risks of making the hospital more efficient.

Circle aims to achieve efficiency savings of £311m over the life of the franchise, an amount described as "unprecedented" by the National Audit Office (NAO) in its own report on the franchise arrangements last year. The PAC said that the company had not managed to achieve the savings it expected to in its first few months of operation and had already parted ways with its chief executive.

It said that Circle had been encouraged to submit "overly optimistic and unachievable savings projections", and was concerned that the bid had not been properly risk assessed. Although some financial and demand risk had been transferred to Circle as part of the deal, the report pointed out that the risk of the failure of any hospital would always remain with the NHS and, ultimately, the taxpayer.

The new Peterborough City Hospital was built under a private finance initiative (PFI) scheme and became fully operational in December 2010. The PAC said that the deal had been "catastrophic" for Peterborough and Stamford Hospitals NHS Foundation Trust and that warnings by NHS watchdog Monitor about the affordability of the deal had been ignored. By the end of 2011-12, the trust was operating with a deficit of £45.8 million on a turnover of £208m - the highest ratio of deficit to turnover in the NHS, according to the report.

The PAC said that the Trust's financial position was now so serious that, even if unprecedented savings were made, it would still require taxpayer support in order to keep running. This could amount to as much as £26m a year for the next 30 years, according to the report.

Monitor, the regulator of NHS Foundation Trusts including Peterborough and Stamford, said that it was implementing the recommendations of an independent review into the handling of the PFI deal.

"Monitor raised serious concerns about the affordability of the PFI scheme from the start, and the Department of Health only approved it on condition our concerns were addressed by the Trust. The Trust went ahead with the PFI anyway," it said. "Once the financial situation at Peterborough and Stamford became clear Monitor took regulatory action and we have worked closely with the Trust, along with commissioners and the Department of Health, to turn around its financial performance."

The regulator had since appointed PwC to address the trust's financial problems, it said. PwC will act as a Contingency Planning Team (CPT) and would "consult widely with the local health economy to find a sustainable solution for providing quality services to the people in the Peterborough area," it said.