Ali Parsa: The banker bringing the market to the NHS

The Monday Interview: Are Ali Parsa's luxury hospitals the future of healthcare? Oliver Wright meets him

It must rank among the stranger conversations I've had with a taxi driver. Me: "Can you take me to the Circle Hospital, please?" Him: "You doing something nice? You should stay for lunch. The food's good there."

But then I am visiting the John Lewis of hip replacements. A hospital group, half-owned by its staff, which is being hailed by the Government as a model for the future of the NHS.

Its boss is Ali Parsa, who arrived in Britain aged 16 as a refugee from Iran and went on to make a fortune as a Goldman Sachs banker. He set up Circle in 2004 and later this month will sign the contract to take control of Hinchingbrooke Hospital in Cambridgeshire – the first time a private healthcare group has been handed an NHS hospital to run. More are expected to follow.

The first thing that strikes you about Circle Bath, the group's flagship 50-bed hospital, which opened in March, is the hospital smell. Or lack of it. Nor does it look like a hospital. There are over a dozen tables set up for lunch at one end of the restaurant while at the other end patients wait to see their doctors on sofas and armchairs. In one corner is a grand piano (they sometimes put on live music) and behind it glass doors lead out on to a patio.

Other things are less noticeable. The hospital has no signs. No one, not even doctors, wears a uniform on the ground floor and there is hardly any medical paraphernalia on view.

Everyone coming in as a day patient has their photograph taken at reception, and when their doctor is ready for them it appears on-screen in the consulting room so the doctor can come out, find the patient themselves and address them by name.

But the most startling fact about Circle Bath is not visual. It is that a third of its patients are being paid for by the NHS at the same rates that an NHS hospital would get, and each of them makes a profit.

Circle was the brainchild of Mr Parsa, who arrived in Britain from a country in the throes of revolution.

"I got to Heathrow and I just knew a couple of words – made in Iran," he says. "It took me three months to learn the language."

He took A-level correspondence courses and was offered places at Cambridge and University College London. He chose UCL where he studied engineering and took part in student politics, becoming the first foreign student elected to the executive of the NUS.

He set up Circle with an ophthalmologist friend, and it now operates five hospitals and treatment centres and has plans for expansion.

Its philosophy is different from both the NHS and the rest of the private sector and is based on three ideas. One, that the existing private and public healthcare model is "unbelievably absurd" and that by changing the way you operate you can do more for less. Two, that in order to do that staff must have not only an emotional but a financial incentive in where they work. And three, that patients are the key to not only to improving care but also to bringing down costs.

On the first point Mr Parsa puts it this way: "If you look at the 1950s we still had rationing because we did not have the right agricultural methods to produce enough food. In a similar way, during the Eighties we re-engineered our financial services industry and in the Nineties our technology and telecommunications industries were transformed. There is no reason why in this decade we can't do the same with healthcare.

"When the NHS was set up, we spent no more than 3 per cent of GDP on health; under the last Conservative government it had risen to 6 per cent; it now stands at around 9 per cent of GDP. If McKinsey is to be believed it will be in the region of 20 per cent by 2050. This is unsustainable."

"As a model it is fundamentally bust and we're seeing is a massive destruction of economic value."

Mr Parsa says part of the problem is that existing hospitals still have far too many beds for the advances in modern medicine, eating money and putting no pressure on staff to discharge people.

He says there is no incentive, either within the NHS or other privately run healthcare groups, for people to do things better and more efficiently. To this end half of Circle is owned by staff who are awarded shares based on performance.

The operating system, devised for each hospital, is based on delegating power down. Staff are divided into clinical teams that meet each month to monitor performance. Mr Parsa claims everyone in the team has an onus (and, he says, a power) to do things differently if they believe they can improve the operation.

So is this the future? Well, like everything in the complicated world of healthcare economics, the answer is yes, no and maybe.

Certainly NHS patients are being treated at Circle Bath in significant numbers, and they like it. But they are a deliberate minority and Circle still makes the bulk of its money from the private-sector patients who pay 30 per cent more. Private patients take priority and always will. NHS patients fill up the hospital around the margins and boost profitability.

But what's really different about the Circle model is the ideology behind it. The belief that staff – if given the power and the financial interest – are better at identifying improvements and efficiencies than managers or people sitting in the Department of Health.

Circle maybe a mutual, but its accounts reveal that it is still very much a money making venture, complete with offshore companies in Jersey. Mr Parsa is unapologetic about this and unsentimental about employee ownership – which he says is not about being philanthropic but purely about getting better results.

Going back to the much over-used John Lewis analogy, he puts it this way: "When politicians think of employee ownership, they only think of the cuddly side. John Lewis was not created by employees; it was created by John Lewis, the entrepreneur. He left it in a trust to employees. It is very well-managed.

"The day it is badly managed it will be taken over by somebody else."