Goldman Ex-Banker Shakes Up ‘Basket Case’ U.K. Hospital

In the hands of England’s government-run health system, Hinchingbrooke Hospital was called “a basket case” in Parliament. Ali Parsa wants to show that private enterprise can do a better job than the state in providing medical care.

Parsa, an ex-Goldman Sachs Group Inc. banker, wants to change how U.K. hospitals are run, right down to the meals served to patients. He’s chief executive officer of Circle Holdings Plc (CIRC), which in February became the first for-profit firm to take over a National Health Service hospital when it began managing Hinchingbrooke in Huntingdon, England. Circle last month raised 46 million pounds ($72.3 million) in part to help the company pursue contracts to manage more NHS sites.

“People told us you can never run a hospital a different way; you can never change the way NHS staff work,” Parsa, 47, says in an interview at the company’s London headquarters. “We have fundamentally changed them.”

As the U.S. debates what role government should have in health care, the U.K. is slowly putting some pieces of its 64- year-old state-run health system into private hands to try to improve patient care and reduce costs. Prime Minister David Cameron says more choice and competition are needed to improve the NHS. Instilling a profit motive in a government-owned hospital means patient needs won’t come first, said Allyson Pollock, a researcher at Queen Mary, University of London who opposes privatization.

“It’s immoral, it’s obscene,” she said in an interview. “It’s a system that’s going to be built on greed, not need. It’s the antithesis of everything that we worked for for 64 years.”

Emergency-Room Waits

From a medical point of view, Parsa appears to be doing something right. Emergency-room waits at Hinchingbrooke, 70 miles north of London, have improved from the county’s worst to its best and lengths of stay for people getting non-urgent orthopedic care have dropped 38 percent, freeing up beds. The company says serious incidents, such as medication errors or patient falls, fell by 80 percent in May. Circle also will save 1.5 million pounds on purchasing this year.

Circle’s bid for the 10-year contract to run Hinchingbrooke beat 18 others. The company gets the first 2 million pounds of profit from any surplus, and a percentage above that amount, which the union that represents hospital workers has said will benefit the company and its shareholders at patients’ expense. Circle must also fund the first 5 million pounds of any loss, a risk at a hospital that already has 40 million pounds of debt.

Patient Perks

Circle isn’t new to the NHS. Its two-year-old private hospital near Bath serves as many NHS patients as private patients -- at NHS prices. Circle has run the U.K.’s largest treatment center in Nottingham since 2008. The company plans to open another private hospital in Reading in August or September and has sites for more clinics.

Parsa says it’s possible not only to provide quality care and a pleasant patient experience for rich and poor patients alike, but to make money in the process. At the core of the business strategy is increased efficiency, primarily through shorter hospital stays. Patient perks, like inexpensive parking and food prepared by a chef from a Michelin-starred eatery, ensure that hospital beds stay full with more rapid turnover.

In Bath, Circle hired a hotel manager and chef from nearby Lucknam Park Hotel & Spa, a five-star country house hotel. People from the local village of Peasedown celebrate their birthdays in the hospital cafe, says Shelagh Meldrum, the hospital manager. No wonder: A recent lunch served to patients consisted of scallops and crab salad over dill and cucumber, followed by a gently grilled salmon main course and lemon posset for dessert.

Stock Performance

Taxi driver Dave McGlennon had a cyst removed from a finger last year at the hospital. A high point: the food. “I had a ham and cheese omelette with potato wedges” after surgery, McGlennon says. “It was to die for.”

Financially, Circle has yet to succeed. The company had revenue of 75 million pounds last year and has lost money every year since it was founded in 2004. Circle’s stock has plunged 51 percent to 75 pence since its June 2011 initial public offering, giving the company a market value of 98 million pounds.

The publicly traded company owns 50.1 percent of a partnership that operates the hospitals and clinics. Parsa and institutional investors Lansdowne Partners, BlackRock Inc. (BLK), Odey Asset Management and Invesco Perpetual are among the shareholders. Employees, including doctors, own the other 49.9 percent.

Taxpayer Funded

Circle’s approach to running a hospital is a radical departure for the NHS. The government created the agency in 1948, bringing hospitals, doctors and other health-care providers into one taxpayer-funded medical system for all. The network now includes 257 general acute-care hospitals like Hinchingbrooke. About 1.7 million people work for the NHS, which provides free care for the U.K.’s 62 million residents.

A network of three NHS hospitals in South London is holding talks with the Department of Health about being put under the control of administrators because it has racked up more debt than it can pay. The department said June 25 that more than 60 other hospitals may be financially unsustainable and require restructuring.

The NHS budget at its inception was 437 million pounds, or 9 billion pounds at today’s value, according to the department. In the current fiscal year, the system will spend 106 billion pounds. The government has approved an NHS overhaul with a goal of saving 15 billion to 20 billion pounds on the annual budget in the four years to 2014-15.

Partial Strike

The overhaul prompted the British Medical Association, which represents two-thirds of practicing doctors, to declare a partial strike for June 21, its first work stoppage since 1975.

“I think the public looks at the U.S. health system and doesn’t want to see big encroachment of the private sector in the British health system,” said Diane Abbott, a member of Parliament who speaks for the opposition Labour Party on health matters.

Defending the Circle deal for Hinchingbrooke in Parliament last year, the Department of Health’s undersecretary of state, Frederick Curzon, said: “This is a hospital that in common parlance could be described as a financial and clinical basket case.”

Circle’s bells-and-whistles approach may be a hit with patients like McGlennon. Skeptics say the company won’t be judged on its cuisine as much as on the quality of its care.

‘Clinical Results’

“I don’t personally go to a hospital based on Michelin- starred food; I go to a hospital for clinical results,” says Andrew Hine, a partner at consulting firm KPMG in London and a former NHS hospital executive.

At Circle’s Nottingham facility, Parsa says patients are eight times less likely to have to return to the operating room within four weeks. In 2010-11, the facility had no resistant Staphylococcus aureus or health-care acquired Clostridium difficile cases. On the financial side, Parsa said the center has made an 18 percent annual compound productivity gain.

He says other U.K. hospitals can benefit from Circle’s approach. “If we can deliver what we deliver at NHS prices, why can’t everybody else?”

To contact the reporter on this story: Andrea Gerlin in London at agerlin@bloomberg.net

To contact the editor responsible for this story: Phil Serafino at pserafino@bloomberg.net

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