In December 2019, Circle Health announced its intention to acquire the UK's leading private hospital company, BMI Healthcare. The acquisition was passed by the Competition and Mergers Authority in early 2020. BMI Healthcare has over 50 private hospital facilities. A separate profile of BMI is available on this site.
Circle was founded in 2004 and by 2019 ran three private hospitals, in Bath, Nottingham and Reading, plus NHS services under contract in four locations. Circle has a joint venture with VAMED with which it runs Circle Rehabilitation, a centre near its Reading hospital providing rehabilitation services. The company won the contract to run Hinchingbrooke Hospital in 2011, however Circle terminated this contract in early 2015.
Acquisition, expansion and new investment
In mid-2020 the Competition and Mergers Authority in the UK approved the acquisition of BMI Healthcare by Circle Health; the acquisition for an undisclosed sum had been announced in December 2019. The acquisition of BMI Healthcare makes Circle Health the leading private hospital chain in the UK. BMI Healthcare has 59 healthcare facilities. Under the CMA approval, Circle must divest its Bath hospital and its Birmingham hospital site.
Documents filed on Companies House state that in January 2020 around the time of the acquisition, the US company Centene Corporation made a large investment in Circle Health via its UK subsidiary MH Services International Holdings (UK) Ltd. Centene via its UK subsidiary now owns 40% of Circle Health and although not in control of Circle Health has substantial influence over the company.
In two related deals in early 2020, 36 of BMI's hospitals were sold to North American real estate investment trusts (REITs): 30 were sold to Medical Properties Trust for £1.5 billion and six to North West Healthcare Properties Real Estate Investment Trust (Canada) for £97.8 million. The hospitals are then leased back to Circle under new leasehold agreements.
From its founding up until early 2017, the company’s financial strategy was based upon investment from venture funds and it undertook two share placements, first the flotation on the Alternative Investment Market (AIM) in June 2011 and the second in June 2012.
The company’s structure has always been very complicated; Circle is split into the operating arm - Circle Partnership - and an investor arm - Circle Holdings. The latter company lends money to Circle Partnership to enable it to carry out the business, with Circle Partnership paying interest on the loan. In addition, since 2004 Circle has bought a considerable number of sites for building new hospitals with each acquisition being financed via the company Health Properties domiciled in Jersey. Most of the planned hospitals have not yet materialized and Circle sold its Manchester land for £9.1 million at the end of 2016.
Circle views the NHS as an opportunity to make money, although to date its success in this endeavour has been mixed. Over the years the company has run treatment centres in Burton and Bradford, but by late 2017 Circle only had a contract for one treatment centre in Nottingham, and this was not renewed in early 2018.
Its most notable NHS contract to date was the disastrous contract for Hinchingbrooke hospital. In 2011, Circle won the contract to run the debt-ridden hospital, however the company abandoned this ten year contract in early 2015 after only two years. The hospital received a damning CQC report after the announcement by Circle that it was quitting the contract (see below for details). Circle also manages Bedfordshire's integrated musculoskeletal (MSK) service on behalf of local commissioners.
Expansion into rehabilitation
In the company’s 2016 financial report, Circle's CEO outlined a new strategy for the company - 'rehabilitation centres'. The company already has a joint venture with the European rehabilitation specialists VAMED. The idea is to build rehabilitation centres close to large NHS hospitals and then offer the NHS use of these centres to alleviate the problems it faces with delayed discharge - patients who no longer need acute care, but who are not fit enough to go home. Circle described the partnership with VAMED as "a game-changer for the group."
The CEO noted in the company's 2016 annual report “the great growth potential here is to build dedicated rehabilitation hospitals close to large NHS trusts…….A 500-bed NHS trust could save millions of pounds a year by moving patients to dedicated rehabilitation facilities, using the latest technology, which would give them better patient outcomes."
The company's rehabilitation services are run by the subsidiary Circle Rehabilitation Ltd. The company has a rehabilitation centre in Reading, and its plan was to add a 120-bed rehabilitation centre to its planned 20-bed private hospital in Birmingham. The Competition and Mergers Authority (CMA) requested the divestment of the Birmingham hospital site following the BMI acquisition. However, Circle completed and opened its 120 bed rehabilitation facility in July 2020. The site is no longer owned by Circle, but Circle Rehabilitation Services Ltd has entered into an agreement for a sub-underlease granting it the right to operate a stand-alone rehabilitation facility within part of the building.
Circle Health Rehabilitation is interested in working in rehabilitation for several different conditions, including musculoskeletal and neurological conditions, cardiology and oncology, and Covid-19 infection. Circle's CEO Paolo Pieri reported at the LaingBuisson’s Investing in International Healthcare Services conference in late 2020 that self-pay inquiries for rehabilitation services at Circle Health’s new Birmingham facility have surpassed expectations.
Circle plans to build more centres aligned to post-acute bed shortages as demand builds and payors come to realise the extent of the financial savings alongside improved outcomes for patients. The company thinks that both the NHS and insurance companies will begin to see the value in rehabilitation beds soon.
Outside of the UK, Circle has a Chinese joint venture, Circle Harmony, announced in June 2016. Circle Harmony's first facility in Shanghai was launched in April 2019. By late 2020 it had two facilities in China, along with a clinical partnership with the Ruijin Hospital. Investors in the joint venture come from private and state investors in China and the objective is to create a network of small facilities aimed at premium end of market.
Circle plans further international expansion, which includes a pipeline of 20 clinics and research facilities in China across the next three to four years.
Earlier ownership strategy
At its founding, Circle was touted by as a “new model” of private healthcare in the UK with 49.9% of its equity owned by employees and providing equity in exchange for a guarantee of a share of a consultants or GPs private business. However since then Circle has moved to reduce the equity owned by its employees. First in December 2014 down to 25%, and then down to zero following the acquisition of Circle by the investment fund, Toscafund in March 2017.
Circle Health Holdings Ltd is the name for a group of companies including nine based in the UK, including Circle Rehabilitation, three based in Jersey, including Health Properties, a property and development company, and the holdings company Circle Holdings (OS) Ltd, one based in Hong Kong, Circle Health Harmony Ltd, one in China, Shanghai Circle Harmony Hospital Ltd, and Circle Partnership Ltd based in the British Virgin Islands.
Circle had only a 50% share of the Hong Kong and Shanghai companies as of December 2018.
Latest financial reports on Companies House for Circle Health Holdings Ltd (company number:10543098) report group turnover of £102.9 million for the 12 month period to 31 December 2019 (2018: £100.7m) . Circle reported a loss after tax of £23.6 million (2018: £15.5 million) for the period. It is not reported in the accounts how much of the company's revenue is from the NHS (or other public body).
The acquisition of Circle by DMWL 849 Ltd (Toscafund) resulted in Circle withdrawing from the Alternative Investment Market (AIM). DMWL 849 Ltd changed its name to Circle Health Holdings Ltd in June 2017. Circle had listed on AIM following a limited public offering in June 2011.
In June 2012 Circle raised £47.5 million through a placing of shares with institutional investors.
BMI healthcare's most recent financial report was for the 12 month period ending 31 March 2020, which can be found on Companies House (02164270).
The total revenue for the 12 month period was £863.7 million. Gross profit was £278.4 million. The company reported that administration expenses were £216.3 million. Total loss for the period was £53.9 million. Revenue from NHS work was £241.1 million for the 12 month period, or almost 30% of total revenue.
In March 2017 the investment company Toscafund put in a bid to buy 100% of Circle. The eventual cost was £69.224 million. The investment fund already owned 27% of Circle shares. The bid was put forward by DMWL 849 Ltd, a company set up by Tosca Penta Funds in order to buy Circle. This acquisition means that Circle no longer has any ownership by its employees. DMWL 849 Ltd changed its name to Circle Health Holdings Ltd in June 2017.
Toscafund is a financial services group based in London, engaged in asset management and private equity. It was founded in 2000 by Martin Hughes, its Chief Executive. Toscafund runs investment funds based in a number of jurisdictions, including the Cayman Islands and Bermuda.
In January 2020, Circle filed documents with Companies House in the UK which stated that MH Services International (UK) Ltd had become a major shareholder in Circle owning over 25% but less than 50% of the shareholding; MH Services International (UK) Ltd is a wholly-owned subsidiary of the US company Centene Corporation and parent of the UK company Operose Health (see profile on this website).
More details of the Centene investment are outlined in MH Service International Holdings (UK) Ltd's accounts filed on Companies House. In January 2020 Centene Corporation loaned MH Services International Holdings (UK) ltd the funds for an investment in Circle Health Holdings. The investment means that MH Services International (UK) Ltd has a total voting interest of 40% in Circle Health Holdings and by extension in its recent acquisition of BMI Healthcare. Centene's investment in Circle via MH Services International Holdings (UK) Ltd is now valued at £67.3 million. The accounts of MH Services International Holdings (UK) Ltd note that the investment gives the Group significant influence, but not control over Circle Health.
In a related deal in January 2020, the US company Medical Properties Trust, Inc. entered into definitive agreements to acquire the leases of 30 of BMI's hospitals, that were part of the Hospitals Topco Co Ltd, in the UK for an aggregate purchase price of approximately £1.5 billion, or approximately $2.0 billion. The facilities are leased under long-term inflation protected net leases to affiliates of BMI Healthcare. The hospitals will be leased under a master lease structure guaranteed by Circle with an initial fixed term of 30 years, two 5-year extension options, and annual rent escalators linked to UK consumer price inflation.
A further six hospitals in the BMI portfolio were sold in a separate deal completed in February 2020 to North West Healthcare Properties Real Estate Investment Trust (Canada) in a deal worth £97.8 million. Circle now leases these properties from this company.
When Circle was set up the idea was for the company to be at least partially owned by its employees. Until December 2014, Circle Holdings owned 50.1% of Circle Health, with the remainder held by Circle Partnership, owned by Circle Health’s doctors and employees. But the company then reorganised itself so that employees owned just 25% of Circle Holdings, which wrote off Circle Health’s debt. Circle Partnership is registered in the British Virgin Islands as Circle Partnership Benefits Trust.
Prior to the DMWL 849 Ltd acquisition, Circle Health was owned 75% by Circle Holdings, which in turn was in the hands of large private equity companies.
Lord Hutton of Furness, a Labour Life Peer, is a non-executive director of Circle.
In March 2020, Circle Health was part of the deal with the government for using all its premises and staff for NHS patients during the Covid-19 pandemic. NHS England block booked almost the entirety of the private hospital sector’s services, facilities and nearly 20,000 clinical staff for the foreseeable future to help cope with the surge of covid-19 patients. The agreement only covers England and added around 8,000 hospital beds, nearly 1,200 more ventilators, more than 10,000 nurses, 700 doctors and 8,000 other clinical staff. This deal, which means the NHS is paying all operating costs for the hospitals, has been a lifeline for the company, as the lockdown meant that no private work was possible.
In June 2020, a £5 billion deal to extend the March deal to help the NHS clear the backlog of work was agreed by NHS England and the private hospital companies, however this was blocked by the Treasury. The Treasury did not believe the deal represented good value for money and that the evidence was not substantial. The block-contract basis of contracts with private providers continued, however, as NHS England prepared a new four-year framework contract for increasing capacity. In June 2021, Circle Health was listed as one of the companies awarded work under the four-year NHS Increasing Capacity contract worth a collective £10 bn.
In October 2020, the HSJ reported that Circle was the recipient of the largest contract for staff and capacity from NHS England, according to a series of contract award notices, however the time period of 2020 this covered is unclear. The contract with Circle (which now includes BMI) amounted to £346.6 million.
These block contracts have been criticised after leaks revealed that the capacity paid for by NHS England at companies such as Circle/BMI was very under-utilised. HSJ reported that two-thirds of the private sector capacity that was block-purchased by the NHS at a cost of an estimated £400 million a month went unused by the NHS over the summer, despite long waits for operations.
Bedfordshire MSK contract
In August 2013 Circle Partnership in conjunction with Pennine MSK Partnership, National Rheumatoid Arthritis Society, Arthritis Care, Horizon Health Choices, and the Luton and Dunstable NHS Foundation Trust, won a five year contract with Bedfordshire CCG for an integrated musculoskeletal pathway. The contract is worth about £120 million and began in January 2014.
Surgical Hospital Framework
In 2014, Circle won a place on the Surgical Hospital Framework agreement worth around £780 million; Circle won accreditation in the area of imaging services and operating theatres and will receive an undisclosed share of the £780 million.
Greenwich MSK contract
In August 2016 Circle was selected by Greenwich CCG as the successful bidder to run an integrated musculoskeletal service (MSK). The five year contract includes the possibility of two one year extensions, and will see Circle run a Prime Provider model, which will integrate all MSK services. The contract is valued at £73.7m. In November 2016, however, the finalisation of the contract was put on hold following a public outcry. The contract will not be signed until after an assessment of its impact on Lewisham & Greenwich NHS Trust. Campaigners fear that changes to the MSK services the Trust is paid to deliver may threaten its ability to provide other services, including A&E services at both hospitals.
In March 2017, management consultants Price Waterhouse Coopers (PwC) published a report on the impact of the MSK contract, which found the Circle contract would have a massively negative affect on the Trust. Lewisham and Greenwich Trust stands to lose up to £6.6m of revenue over five years, according to the report, unless Circle Health contracts it to deliver community based services and “other orthopaedic activity”.
It would be possible for the Trust to mitigate the financial loss from the Circle contract, if Circle used the trust’s resources to deliver community care and if Circle “repatriated other orthopaedic activity”, meaning orthopaedic surgery. However, the contract with Circle contained “no contractual commitment to do this at present”. This absence of a guarantee, noted the report, “poses a risk to the trust which would be exacerbated if further activity loss was to occur”.
The PwC report noted that the Trust's MSK services would be under threat if Circle were to contract with another provider because the loss of activity would make Queen Elizabeth Hospital “the smallest site delivering both trauma and orthopaedic services in the country which may impact the delivery of quality and safe care”.
The report also noted that there would be an issue with the Trust's ability to train doctors, due to the reduction in activity.
According to a leaked document seen by the HSJ, as a result of the PwC report, Circle has signed a tripartite agreement to agree to all the mitigations proposed by the incumbent Lewisham and Greenwich Trust.
The mitigations include a specified “minimum activity level” for the trust for five year contract term. They also include a termination clause that says Circle’s contract, awarded by Greenwich Clinical Commissioning Group, will end if planned activity levels in orthopaedics at the trust fall below a certain level.
Rushcliffe Trauma and Orthopaedic Community Triage
In March 2017 a contract was published that showed a £348,000 contract had been awarded to Circle. The goal of this contract was to reduce the number of unnecessary hospital referrals and increase the number of patients managed in primary care and community settings.
Nottingham Treatment Centre
The Nottingham NHS Treatment Centre contract with the Department of Health has now come to an end. This contract was extremely important for the financial stability of the company, particularly following the loss of the contracts in Burton and Bradford in 2011. In March 2018, however Circle pulled out of a bid for a renewal of this contract for another three years worth £150 million. The company withdrew because in its view the amount of money on offer was not sufficient to deliver services on a “sustainable basis” at the treatment centre. The value of the contract had been reduced to £50 million per year from £67 million per year.
Circle threatened the CCG commissioners with legal action over the contract and as a result of the threat, in early May 2018, the commissioners of the Nottingham contract, Rushcliffe CCG, allowed Circle to continue with the contract for a further year. Following a new procurement process, Rushcliffe CCG awarded the contract to Nottingham University Hospitals NHS Trust (NUH). In January 2019, Circle launched a second legal challenge against the CCG claiming the Trust can’t possibly treat NHS patients for less money, and that bringing the contract back in-house would be “unrealistic” and “not in patients’ interests”. In May 2019, Circle lost this legal action against Rushcliffe CCG and NUH was free to begin the five-year contract to run Nottingham Treatment Centre. Circle felt this decision was "flawed" and "unfair".
The now defunct Hinchingbrooke hospital contract, began in November 2011 when Circle signed a ten year contract to run Hinchingbrooke Hospital, with management beginning in February 2012. Under the agreement, the staff and assets remained part of the NHS. At the time Hinchingbrooke hospital had a debt of approximately £39 million, which Circle needed to eliminate if it was to make a profit from the contract. Hinchingbrooke was reported to have an annual turnover of £90 million. Media reports noted that Circle could make £31 million out of the contract over the ten year period.
Circle was only required to cover any losses incurred by the trust over that period beginning in February 2012 up to the first £5 million. If the trust incurs further losses whilst managed by Circle, either party could terminate the deal, requiring Circle to pay a £2 million termination fee to Hinchingbrooke. This meant that the company’s potential losses were capped at £7 million, or approximately 0.7% of the NHS funds it will manage over the term of the contract. Any surpluses made at Hinchingbrooke would be split between Circle and the NHS.
The Hinchingbrooke contract was a disaster for Circle in both financial and reputational terms. A report by the National Audit Office in September 2012, noted that Circle had already missed its own financial target for the Hinchingbrooke contract, generating a deficit of £4 million by September 2012, £2 million behind where Circle said it would be. Circle admitted that this meant that it would end up bearing £3.5 million in losses in 2012, which it would fund. The National Audit Office warned in its report that "Circle's projected savings of £311 million over 10 years are unprecedented as a percentage of annual turnover in the NHS... Circle's bid did not fully specify how it would achieve these savings."
To try and make the contract financially viable, Circle needed to make big savings at the hospital and this led to a drastic reduction in care quality. Savings were made at the expense of staff, with between 270 and 300 jobs being cut and several wards lying empty. The hospital fell from joint-highest in the area in a patient satisfaction survey to nineteenth out of 46 hospitals trusts across the NHS Midlands and East region in August 2012. This is a “friends and family test” in which patients are asked to say whether they would recommend the trust to friends and family.
In early 2015 as Circle announced that it was terminating the contract to run Hinchingbrooke, the CQC released a report on the hospital. The report rated the hospital as inadequate and the hospital trust was put into special measures. The Chief Inspector of Hospitals stated "Our inspection highlighted a number of serious concerns surrounding staffing and risks to patient safety particularly in the A&E department and medical care. There were substantial and frequent staff shortages in the A&E department. There were a number of other areas of concern, some of which related to the way in which the trust is led and run."
The hospital is now run by Hinchingbrooke Health Care NHS Trust and is now rated “good” overall by the CQC.