Circle Health, company best known for its disastrous failure to run Hinchingbrooke Hospital, one of the smallest NHS general hospitals, and its unsuccessful court challenge to losing its contract to run a treatment centre in Nottingham, is buying up the largest private hospital chain in Britain, BMI Healthcare.

This will take Circle from a small scale business that had never made a profit, and was valued at £75.2m when it was taken over and delisted from the Stock Exchange in 2017 by hedge funds Toscafund and Penta Capita, to a major company with  a combined annual revenue of nearly £1 billion, with 54 hospitals and over 2,600 beds.

BMI, which was previously owned by South African private health corporation Netcare, is being taken over for an undisclosed amount, as Netcare pulls out of the British private health care market after thirteen years.

Toscafund first took over a substantial share of Circle in 2015 shortly after the firm pulled out of the Hinchingbrooke contract. Financial deficits were rising and performance was plummeting as a result of the company injecting its private sector “know-how” into a previously successful hospital and alienating staff, forcing increased reliance on more costly agency staff.

As Circle pulled out, Hinchingbrooke received the CQC’s worst-ever rating for levels of care, and “inadequate” ratings for safety and leadership. The company threatened legal action against the CQC and tried to prove there had been a “Labour Party plot” to force it out of the contract, but eventually gave up.

One familiar feature of both for Circle is dependence on NHS-funded patients: Circle’s own small private hospitals in Reading and Bath have always been heavily dependent on income from treating NHS-funded patients, and BMI hospitals – where NHS work accounts for 42 per cent of revenues.

Up to now Circle’s most profitable business was its NHS contract to run the Nottingham Treatment Centre, Europe’s biggest treatment centre, which provides NHS-funded services including gynaecology, cardiology and respiratory medicine along with diagnostic testing and treatment for cancer.

However in May this year Deputy High Court judge Sir Anthony Edwards-Stuart ruled that the CCGs sending patients to Nottingham could go ahead and hand the 5-year £320m contract to Nottingham University Hospitals Trust from July. Further legal action by Circle, seeking damages from the CCGs, has not yet been dealt with by the courts.

The big question for the new expanded Circle after the takeover is completed this month is whether the new company can buck the trend of declining margins from privately insured patients and restricted NHS budgets which persuaded Netcare to pull out of the British market, and deliver increased profits.

If not, how long will Circle’s proprietors, Toscafund and Penta, both noted for their focus on profitability, continue to pump in the funding to keep the business afloat?

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