HUNTINGDON, England (Reuters) - Maggie Blight has only praise for the local state-funded hospital where she got her hernia fixed last year.
"I couldn't fault it. It was excellent," the 67-year-old family worker said of the care she received at Hinchingbrooke hospital in Huntingdon, 60 miles northeast of London.
Now she is worried, not for her own health, but for that of the debt-laden hospital, which is the first in more than 60 years to be transferred to a private company from the state system under a contract approved on November 10.
At the heart of her concerns -- shared by many in England -- are fears that organizing health services around profit will lead to services being cut and patients being forced to pay extra for some treatments.
Ministers and officials stress the worries are unfounded, but the subject is sensitive in a country where the National Health Service, providing free care for all since 1948, is viewed with an almost religious awe.
Any dilution of the system where the state both pays for and provides medical care is routinely condemned as unacceptable "privatization."
"I think of it as our National Health Service, it belongs to us, we paid for it," said Blight.
"As soon as you have got private enterprise involved, the word profit pops up," she said.
Britain's state health service is under strain from a 20-billion-pound savings program, a massive reorganization of primary care and proposed legislation to increase competition among providers of medical care.
With a 100-billion-pound ($160-billion) annual budget and 1.4 million staff in England alone, even a sliver of its business is an attractive prize for private health operators.
Conservative Prime Minister David Cameron and his ministers say greater competition from within and outside the NHS will improve efficiency and quality, and argue that the standard of medical service is what matters, not who delivers it.
Critics fear the legislation will destabilize the system by encouraging state hospitals to abandon unprofitable services and splitting patient care among unconnected medical providers.
The debate has hurt Cameron, who has worked hard to shake off his center-right party's reputation -- gained under former leader Margaret Thatcher in the 1980s -- of preferring private to public healthcare.
Circle, a medical cooperative listed on the London stock market with ownership shared between its employees and international investment funds, will take over management of Huntingdon from February.
The hospital's future had been in doubt since 2007 after it ran up debts of 39 million pounds on an annual turnover of just 100 million pounds, partly because a new treatment center failed to attract as many patients as expected.
Circle says it can pay off the debts over the life of its 10-year contract by identifying more efficient ways of delivering care. Unison, the main health union, says it fears a loss of jobs from "profiteers."
Local health officials said if the Circle deal is successful, it could be repeated at the estimated 20 other NHS hospitals suffering financially.
The hospital will remain NHS property, staff will remain NHS employees and patients will continue to receive NHS treatment free of charge.
"This is not privatization," said Stephen Dunn, policy director at local health authority NHS Midlands and East, who conceived of the plan.
"It's a ground-breaking and watershed moment for the NHS. I am confident that this will be a model for the future," he said, and added that it was a "great deal" for local people.
Huntingdon's residents praise the care provided by the mainly single-story hospital, which opened in 1983 to the west of the town and serves a catchment of 165,000 people in the surrounding area.
Its location spares local patients an 18-mile journey to larger hospitals in Cambridge or Peterborough.
"The maternity service was fantastic," said Jo Robinson, a 38-year-old writer whose son was born at the hospital in September last year.
The Circle contract is actually part of a wave of public sector reforms introduced in the early 2000s by former Labour Prime Minister Tony Blair, who held that the state did not have to be the sole supplier of public services.
The Hinchingbrooke deal itself was set in train under the previous Labour administration, voted out in May 2010, which hired private firms to provide NHS services at around 30 new orthopedic and day-surgery treatment centers.
Circle takes this one step further and will be the first private company to run the full range of hospital services, including maternity and emergency care, since the NHS was founded.
Commercial rivals say it will be hard for Circle to make a profit at a small hospital like Huntingdon while it continues to be paid standard NHS rates for carrying out treatments and at a time when the state service is seeking spending savings of 5 percent a year.
The hospital could also lose some income-generating patient services because of trends in medical practice: specialist treatment such as stroke care or heart surgery is increasingly concentrated at larger hospitals, while many minor procedures and long-term care can now be moved to smaller community clinics and even patients' homes.
Matt James, chief executive of the Private Hospitals Alliance, a private healthcare lobby group, said he had twice backed out of bidding for the Huntingdon contract when working for health firms.
"In both instances I could not justify the level of risk involved given the minimal, if any, expected returns," he said in emailed comments.
Circle Chief Executive Ali Parsa, a former executive of investment bank Goldman Sachs, said his firm would make money by cutting waste, not services.
"Our problem is we have a healthcare system we can't afford and it needs to become more efficient," he said.
He said Circle had improved productivity by 20 percent in the first year of running an NHS surgical treatment center in Nottingham, central England, while improving quality of outcomes, by giving greater authority to doctors and nurses.
"It's incredible what can be achieved within the (health) system with the same people," he said.
Parsa said local people should not worry that Circle -- which will take a share of annual surpluses -- would put profits before patients. Circle would aim for a single digit surplus similar to that targeted by existing NHS organizations, and would reinvest part of that back into services, he said.
"Our profit will not come from taking more money out of the healthcare. Our profit will come by taking more waste out and ensuring that the surplus (is shared) between everybody," he said.
Under Circle's contract the company will not get paid unless Hinchingbrooke hospital makes a surplus and its historic debt is being repaid. If the hospital slips back into the red, Circle will be liable for up to 5 million pounds of the deficit.
Nigel Beverley, Hinchingbrooke's interim chief executive, said the Circle contract, which went through 12 months of government scrutiny, was vital for the hospital's survival.
Although the hospital was now running with a small surplus, it could not pay off its debts alone and would have had to find another partner or consider closing if the government had rejected the contract, he said.
"If the deal had not had happened we would have to go back to the drawing board. Fortunately we are not in that position."
Additional reporting by Paul Sandle; Editing by Sonya Hepinstall