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Circling the Drains

Posted by Dr No on 10 November 2011

hinchingbrooke.jpgSo – the Iranian Hospitalier, Mr Anti Pasta, the ex-Goldman Sachs banker who likes to make the money go a long way (viz. to off-shore tax havens), has finally bagged Hinchingbrooke. His Circle group have been given the contract to take over running the ailing hospital. Radio 4’s Today programme put a curious too-small-to-matter slant on the story, perhaps as relief to too many too-big-to-fail bank/government/country stories. TweedleWebb, however, and to his credit, did manage to slip Mr Pasta the three-in-a-bed question: what happens to the money when you add commercial investors to the provider-patient marriage? Mr Pasta replied in the high tones of a man in a state of preternatural excitement – either that, or someone had recently grabbed him where they had no right to do so.

Mr Pasta, who is not to be congratulated for telling the truth, the whole truth and nothing but the truth when he likens his enterprise to John Lewis - the majority holding, all be it by a small margin, in Circle belongs to private investors, also suggested that his business model is no different to that used by general practitioners, most of whom are after all private contractors, contracted to provide NHS services. His argument was that what was sauce for the general practice goose could just as rightly be sauce for his Hinchingbrooke gander. It was all about, he told the BBC’s News at Ten later, letting staff do ‘what tey tink is best’.

Whatever one may tink, Mr Pasta does, on the face of it, have a point. Private enterprise – of a sort – lies, and always has, at the heart of British NHS general practice. But there is a crucial difference between the goose and the gander: primary motive. Most GPs, Dr No accepts not all, do not invest in a medical training, and set up as GPs, with the primary purpose of making money. Mr Pasta’s investors – city types – are, on the other hand, only involved with one purpose, and that is to turn a profit.

Two vital differences follow. The first is the business arrangements. General practice is almost always set up on a simple partnership model – why make things complicated when simple will do? Venture capitalists, on the other hand, like to create Minoan mazes to protect their interests: OpCo-PropCo divides, SPVs, off-balance sheet assets and liabilities - and off-shore accounts. Why leave things transparent when you can leverage complication?

The second difference, as Martin Amis might have said, is that the money is always after the money. While a GP in a tight corner will usually know his or her primary duty is unassailably to his or her patient, a venture capitalist sails to a different compass. We have only to look at Southern Cross to see in what direction that compass points. And news is already abroad that – like heads-we-win-tails-you-lose-bankers – Circle investors’ financial losses are already protected.

The unions have already said that Hinchingbrooke is now an ‘accident waiting to happen’. Dr No believes the unions may, sadly, be right. But, just as sometimes it is necessary for a child to feel the heat of fire to learn of its danger, so he fears the NHS must experience the failure of Circle, to learn of the dangers of privatisation.


Looks like it will be one of the few Hosp. that Monitor won't fail as failing it means the Govt has failed.

My suspicion is that with the background of Goldman (of Greek collapse fame via Antigone) they have a contract of min income even if no one refer cases to them and there is no upper limit. Govt. money is the best money to be made.

I understand that doctors who are partners(sic) have no voting rights.

Anonymous – interesting. Certainly the ownership of Circle (50.1% Circle Holdings, the investment vehicle owned by financiers, 49.9% by Circle Partnership, the alleged ‘John Lewis Partnership’ style collection of clinicians and Circle staff) appears clear, and is still evident on Circle Holdings and other eg London Stock Exchange websites (the latter link also lists the ‘Person(s) interested’ (financiers and share-holders) in Circle Holdings).

So – we can be clear that the majority (and so controlling) interest in Circle is held by financiers – the same sort of suits who ran Southern Cross.

The voting rights of individual Circle Partnership members/share-holders do indeed look less clear, and may well be non-existent. Until recently, the suggestion – usefully quoted, for example, by Richard Blogger here (scroll down to comments) – was that Circle partners had voting rights:

“Circle is structured as a partnership of clinicians and other professionals. Being a partner means you share in the ownership of Circle, with shareholder voting rights to help direct the company.”

However, this statement now appears to have disappeared from Circle’s websites. All Dr No could find was this, from Circle Holdings AIM (Alternative Investment Market) Admission Document (page 52):

“How the Circle Partnership operates

The Circle Partnership is a private limited company incorporated in the British Virgin Islands…Each Circle Consultant [ie partner] is allocated a nominal number of Circle Partnership Shares on joining the Circle Partnership, based on the size of the Circle Consultant’s private practice and the percentage of that private practice the Circle Consultant commits to perform in a Circle facility…

[when hospitals are called facilities, Dr No starts to shudder]

…Each Circle Partner is entitled [in due course] to dividend and capital rights in proportion to the number of share points he or she has accrued as a proportion of the total shares points accrued by all Circle Partners. Circle Partnership Shares are legally held by the Circle Partnership Benefit Trust, the trustees of which exercise the Circle Partners’ voting rights with respect to the Circle Partnership Shares.”

The reasoning behind the 50.1/49.9 per cent maths and the non-allocation of voting rights to individual Circle Partnership share-holders becomes clearer from an earlier statement (page 46) from the AIM Admission Document:

“In order that the consultants, other medical professionals and Circle employees who participate in the Circle Partnership can play a role in the management of Circle, the Company [Circle Holdings] and the Circle Partnership have agreed that each shall be entitled to appoint an equal number of directors to the Circle board, and each currently appoints one director…If a deadlock situation were to occur, the articles of association of Circle provide that the directors appointed by the Company have 50.1 per cent. voting power and can accordingly block and carry resolutions at board level except for various reserved matters (for example, the issue of shares or a material change in the nature of the business of Circle) which require 65 per cent. shareholder support.”

This purpose is reinforced later (page 74):

“The Company [Circle Holdings] and the Circle Partnership have equal representation on the board of Circle but in deadlock situations the directors appointed by the Company have 50.1 per cent. voting power and can accordingly block and carry resolutions at board level.”

So, in summary, it seems that:

1. Circle is explicitly (p46 and 74 of the AIM document) set up such that Circle Holdings (ie the financiers) have the controlling vote (except in exceptional circumstances)

2. The minority 49.9% holding by Circle Partnership does not confer voting rights on individual partners; these instead are vested in the trustees of a mysterious ‘Circle Partnership Benefit Trust’.

Dr No has not managed to find out who the mystery trustees are. For all he knows, they could be head-quartered in a hut - a beach hut in the BVI...

Dr No can’t help wondering if the Circle Partnership JLP social enterprise stunt is merely a wheeze to sanitize the apparent public face of Circle, which increasingly looks as if it is effectively controlled by Circle Holdings (the ‘investment vehicle’). It seems the Circle Partnership consultant/partners may well be allowed to decide on the colour of the carpet in their consulting rooms – but when it comes to the big votes, they will be left out in the cold.

Or great catch. Ex-Goldman Corzine was MF Global and Mayor of New Jersey. $600 million missing. La La has been warned!!!

It seems that a year ago, The CE of the Social Enterprise Coalition was of the view that Circle was more than 50% owned by it's employees...

This quotation remains on their website a year later.

"Clear social mission"

[On the Hinchingbrooke hospital contract]: This is great news for the social enterprise business community. Circle is more than 50% owned by its employees and has a clear social mission. An employee-owned organisation gives staff a say in how its run, and production and profitability normally increase as a result of a loyal and happy workforce.

Source: Chief Executive of the Social Enterprise Coalition, Peter Holbrook, 25 November 2010"

In view of the perceived similarity to Circle, My Black Cat has been searching the stock market high and low for John Lewis shares to buy. She thinks they might carry less of a risk that shares in a recently floated AIM company. She can't find any except the unrelated JLH (John Lewis Hungerford). She doesn't seem to understand the mutual nature of John Lewis and the fact they decided against stock market floatation a long time ago. Stupid Cat!

Mr Anti Pasta seems to be confused about the nature of John Lewis also. Black Cats and witches can be forgiven for their ignorance on these matters but Mr Anti Pasta, with his financial pedigree cannot.

So "Dettol" must come into it somewhere, I suppose.

Care may suffer, admits private company taking over NHS hospital. Don't blame "us", "we" did warn you!!! via @guardian

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