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How to set up a GP Federation

Everyone seems to be talking about federating practices at the moment. The concept is not new, but it seems that closer inter-practice working arrangements are an idea whose time has come. It is important however not to ‘act in haste, repent at leisure’, so we have put together this practical checklist to help practices deal calmly with federation suitors.

  1. Legal Form must follow function. First decide what you are going to do together, and only then think about the legal entity. Questions to ask should include:
    – Which new services are we going to provide?
    – Where and how will we obtain the contracts?
    – How will we deliver these new services?
  2. Rule Social Enterprise in or out – quickly. There may well be an NHS preference for Social Enterprise, and most people like the concept of involving the community in healthcare decisions. As a result many federations spend considerable time considering this option. However, running a business as a Social Enterprise adds complexity, regulation and cost, and ties up capital. Ask yourself whether you want the business assets and income to be locked-in, and if the answer is no you should set the business up as a commercial venture. There is nothing to stop you still involving the community, or indeed converting to a Social Enterprise at a later date.
  3. Merger or separate venture? Practice mergers are sometimes seen as just another way of federating. In reality a practice merger goes much deeper and requires considerably more thought and planning. The merged practices will be sharing their existing list based GMS/PMS contracts, staff and processes, and will need to be managed as a single practice. Above a certain size it makes sense for a subset of partners to form an executive management team. The most obvious reason to merge is to reduce back office costs and facilities, and to enable greater specialisation. Practices should not merge simply to have a better chance to win new contracts, as this is better achieved through a separate joint business vehicle.
  4. NHS Pensions.  If you want the income from the new contracts to be NHS pensionable, there are only a limited number of business vehicles available. For example, LLPs would not normally be able to pension NHS income.
  5. Consider Tax. All federation options have significant tax implications. There may be significant savings available through reliefs, or charges payable because of asset transfers, income overlaps or VAT. Tax is usually one of the primary drivers determining the business entity.
  6. Work with people who share your vision. Some practices are being pushed to federate by their CCG. This should be resisted unless you are confident you can all work together and have a shared view about what you are going to do. Every business needs good management, and it will not be possible to achieve this if you don’t get on.
  7. Keep it (fairly) simple. It is generally sensible to set up a separate provider entity as a company limited by shares with each practice as a shareholder. Ask yourself why you would want to use any other structure? Don’t be tempted to use an informal costs sharing arrangement however, as the risks to the existing partnerships are too large.
  8. Think about procurement – now. Tendering for AQP contracts is a complex and onerous process with a tight 4 week timeline. You need to know how you are going to respond to a tender before it is even published. Get help from people who have done it before.
  9. Ensure that member Partnerships are stable. The stability of a provider company is based on the stability of the member practices. Make sure as a minimum that all member practices have valid partnership deeds (stating what happens to their shares when a partner joins/leaves) and security of tenure in their building.

If you have any questions on federations, please do not hesitate to contact the author of this article, Nils Christiansen


Posted on February 26th 2014 in News and Publications, Newsletters

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