Southern Cross became a FTSE 250 company on the back of the profits it made from looking after the elderly. Earlier this year it realised that it could no longer afford the rent on the care homes it once owned, but had sold off and leased back.
Unlike most business models that don’t pan out, this failure put the future care of 31,000 old people at risk. Many of them will have understandably been frightened when the news emerged.
But when chairman Christopher Fisher issued a statement announcing that Southern Cross was shutting down, he made his priorities explicitly clear. “We regret the loss of value which shareholders have experienced,” Fisher said in a statement.
You might have thought that this fiasco would have made governments think twice about allowing for-profit companies to operate entire district hospitals. Not a bit of it.
Circle Healthcare, run by former Goldman Sachs banker Ali Parsa, is about to take over Hinchingbrooke hospital in Cambridgeshire. The exact terms and conditions of the contract are not being made public, it seems.
There are built in safeguards, we are assured. The NHS will continue to own the buildings. Hinchingbrooke will act as social enterprise, removing the duty to maximise shareholder value, and the staff will be accorded a John Lewis-style 49.9% stake.
It’s also worth pointing out that the deal is a culmination of a process set in train by Labour, the party of which I am a member. That alone ensures that any criticism from the opposition will have to be muted.
In the next ten years, Circle says that it will not only pay off the £40m of debt that Hinchingbrooke owes, but will generate a profit as well. I wonder if anyone has asked the obvious question; what if it doesn’t?
UPDATE: The website politicshome.com points out that Circle is part-owned by Odey Asset Management and Lansdowne Partners. Odey donated £242,000 to the Conservative Party between 2007 and 2011, and until August this year employed Tory MP Kwasi Kwarteng as a consultant. Paul Ruddock and David Craigen, respectively chief executive and partner at Landsdowne, donated £589,586 and £59,000 to Tory coffers between 2003 and 2011.