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Circle Health

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Circle was founded in 2004 and now runs 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.

Strategy

Circle was touted by its founders 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.

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.

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."

Circle has a pilot rehabilitation centre in Reading, and its plan is to add a 120-bed rehabilitation centre to its planned private hospital in Birmingham, due to open in 2019.

Outside of the UK, Circle has a Chinese joint venture, Circle Harmony, announced in June 2016. The company is expecting Circle Harmony's first facility in Shanghai, along with a clinical partnership with the Ruijin Hospital, to be complete in the third quarter of 2017. 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.

Financials

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 2017.

Latest financial reports for Circle Health Holdings Ltd (company number:10543098) report group turnover of £100.9m for the period 26 April 2017 to 31 December 2017. Circle reported a loss of almost £6.2 million for the period. 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.

In June 2011, Circle undertook a limited public offering with a listing on Alternative Investment Market (AIM). The flotation raised £45 million, which values the company at £95.4 million.

In June 2012 Circle raised £47.5 million through a placing of shares with institutional investors.

Investors

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.

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.

Contracts

Nottingham Treatment Centre

The Nottingham NHS Treatment Centre contract with the Department of Health was renewed in February 2013. This contract has been 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 is 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 has threatened the CCG commissioners with legal action over the contract. As a result of the threat, in early May 2018, the commissioners of the Nottingham contract, Rushcliffe CCG, announced that they will allow Circle to continue with the contract for a further year and begin a new procurement procedure after this time.

In May 2019, Circle took legal action after Rushcliffe CCG awarded Nottingham University Hospitals NHS Trust (NUH) a five-year contract to run Nottingham Treatment Centre. Circle felt this decision was "flawed" and "unfair", but a High Court Ruling meant that NUH will now run the centre for the next 5 years.

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.

Hinchingbrooke Hospital

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.

Concerns

Care Quality

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.

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