Circle: why there needs to be an inquiry into outsourcing failures

The media and political furore that has followed the announcement by Circle that it is withdrawing from what was already a controversial contract to manage Hinchingbrooke Hospital in Huntingdon was to be expected.

Now it is important that we dive below the headlines to discover the lessons that government, the NHS, the wider public sector and contractors need to learn. There will be many and varied lessons – some generic to public sector outsourcing and franchising, as well as some more specific ones relating to the management of hospitals.

Circle claims to have put in more than £5m into the hospital and this was, understandably unsustainable. So why did it bid and contract for this opportunity? What did it expect to happen and why has it been so disappointed? And why did the NHS not expect this to be the outcome when it let the contract? There are many questions to be answered.

The government remains committed to an ever-greater role for the business sector to manage and operate NHS services including clinical services and, as at Hinchingbrooke, entire hospitals. It even sees a role for the private sector in clinical commissioning.

But it would be folly to pursue such a policy without understanding what has happened and what might have been done better or deciding that this policy should be dropped. Therefore, the government would be well advised to either press the stop or the pause button until there has been a full independent enquiry and review of the Circle-Hinchingbrooke saga.

Such an enquiry should, in my view, have a wide remit. It should start at the beginning and examine the last government’s policy programme and its role and finish by looking at the options now available to the NHS to sustain this hospital and ensure that patients in this area of Cambridgeshire have access to quality services.

In particular I would expect the enquiry to want to understand how a public service contract was let that allowed a provider to bear the risk of fluctuations in demand to the degree that appears to have been the case here given the commercial consequences for that provider and which allowed the contractor to walk away seemingly without any financial penalties even though the Care Quality Commission found the hospital ‘inadequate overal’. The hospital was in an appalling state, including its finances, before Circle took over and there have been some improvements but it has been found to be inadequate, which is not good enough. What went wrong, why and when?

CQC found that there was confusion between the roles and responsibilities of the trust board and Circle, with both claiming to be responsible for holding the management team to account. It has also been said that its report is not a judgement on the role of the private sector and the franchise arrangement but, in my view, it is very hard to see how these can be reviewed separately from the overall performance of the hospital.

I would propose that the secretary of state establishes an independent enquiry having consulted his colleagues in the Cabinet Office and Treasury, as there are implications and lessons for wider public sector outsourcing and franchising involving the business sector (and possibly large-scale contracts with the charity, social enterprise and voluntary sectors). This is not the first major public service contract or franchise arrangement to fail. It probably won’t be the last, especially if the lessons are not understood and new approaches are adopted.

I propose that the terms of reference of such an inquiry should include a remit to question and probe:

• the basis on which the policy to use business sector providers and competitive tendering to manage hospitals and similar public services was developed and what the evidence base was
• the particular challenges and prudence of contracting (and franchising) in areas where there are so many external influences on the level of demand and performance and where public opinion is very sensitive to ethos, performance and profit – and what contracting models could be more appropriate in such circumstances
• why there was such a low level of market interest when the invitation to tender was issued and what pre-market research the NHS and Department of Health had undertaken
• the capacity and competency in the NHS and wider public sector to procure and contract manage large complex public service contracts including assessing the proposed business and financing models of bidders
• the nature and content of this particular contract
• the contract client capacity and competency within the NHS and the public sector more generally and its availability to individual CCGs and other contracting bodies; and how the NHS allowed the provider to run a hospital that was “inadequate overall”
• the relationship between the trust board and Circle and their respective responsibilities and accountabilities
• the conditions (operational, commercial, financial and political) and the service areas where the business and/or charity, social enterprise and voluntary sectors are able to add value in health and wider public service provision
• lessons from other jurisdictions
• specific lessons from the Hinchingbrooke procurement itself and its operational phase; and whether this is a genuine isolated case with no implications for other services
• the ability and capacity within the NHS and wider public sector to respond to failure or provider withdrawal in order to sustain an adequate service
• how much the views and experience of patients and staff were taken into account, and how much they were or could have been engaged during procurement and client performance management – and indeed how this could be improved for other outsourcing and franchising contracts and how best providers could be held financially to account for user satisfaction
• local accountability and transparency of financial and operational performance in complex and critical public service contracts

I have previously argued, as have others, for an inquiry into public service outsourcing and related policies and practices. For too long politicians have avoided such an enquiry. The Hinchingbrooke saga surely could be the catalyst for the government and indeed all political parties to commit to such a comprehensive enquiry and, given their commitment to competition, to explore and evaluate alternative ways of securing step change and continuous improvement across our public services in a period of austerity and rising demand.

The worse possible government response would be to continue to contract out, outsource and franchise without any lessons being learnt from Huntingdon.