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Avoiding the legal pitfalls when managing a GP Federation

There are now a substantial number of GP Federations and it is a model of working that is widely supported by CCGs.

GP Federations are normally the coming together of a group of general practices to create a single entity that has responsibility for delivering high quality, patient-focused non list based services for the wider community.

In the first of our blogs on this topic, we looked at the key issues you need to consider when establishing a GP Federation – How to set up a successful GP Federation.

In this, the second in the series, we’ll highlight some of the most common legal issues that can arise once a Federation is up and running and the steps you can take to mitigate them.

  • Document responsibility for Service Delivery

Most GP Federations will need to bid to secure NHS contracts. Delivery of these contracts will usually be handled by individual member practices. It is important that the obligations of each member practice are documented in a subcontract, so that both NHS England and the other member practices are clear about exactly where responsibilities and liabilities will lie. It is also important to obtain consent from the commissioner before you sign these subcontracts.

  • Confirm who needs to register with the CQC 

There has been considerable debate about whether GP Federations need to register with the CQC and you can view specific guidance on this subject on the CQC website.  The main point to remember, is that you only need to register a Federation if it will be a provider of services. If all services are being performed by the member practices through subcontracts, then they are the ones who need to register or amend their existing registrations.

  • Decide how shares will be managed

If your Federation is successful and you’ve worked hard to build up its value, then you may soon find other practices are knocking on your door to join. This raises questions about the basis on which they should be permitted to buy shares. In an ordinary commercial business, you would obtain a professional valuation of the shares before any new shareholders were bought in or bought out. However, this is often impractical for a GP Federation, where partners in member practices will join and retire frequently, and may be undesirable if you decide not to value the goodwill or to operate as a social enterprise.

  • Ensure your NHS Pensions are run correctly

This is a complex area, which often requires careful thought and planning. It is perfectly possible for income from a GP Federation to be pensionable, if you have made the necessary applications and designed the entity in the correct way. What you want to avoid at all costs is discovering, perhaps years down the line, that a mistake has been made with your staff pensions. Always take specialist advice to ensure you are on the right track.

  • Always maintain the shareholder register

It is a legal requirement that the company share register is kept up to date. One problem faced by GP Federations is that they are not always notified when changes have, or should, have taken place.  Examples of this include when a shareholding partner retires from their practice, or a member practice closes or merges.  These events should all result in a share sale, transfer or buy-back but in our experience, few GP Federations have an up to date register of shareholders and a robust process for managing changes.

  • Think about how you will govern your Federation

GPs often try to govern a Federation in the same way as they govern their partnerships. This will usually involve a board of directors, comprising of one partner from each practice. Whilst this may enable every practice to understand what is (or is not) happening, it doesn’t promote efficient decision making – particularly in larger Federations. Generally, a Federation will be dealing with larger, more risky contracts and needs to be organised in a much more corporate way.  This means having board members with expertise in particular areas, perhaps hired externally. Every practice should have their say as Shareholders, but do not necessarily need day-to-day representation on the Board.  Remember, the legal obligations of a director are always to the company – i.e. the Federation – and not to the member practices. 

  • Consider director service and employment contracts 

GP Federations will often be set up with the aim of passing work through to the underlying practices and little thought will be given to service contracts for the directors. Directors may get paid little or nothing by the Federation for their services, simply relying on the Federation monies forming an additional income stream for the practice.  The problem is that a GP can then be a partner, a shareholder and a director, and each of these roles has different legal responsibilities and different types of income for tax purposes.  If the roles are not clearly defined within your legal documents, you may find that the Courts and HMRC take a different view from you, leading to some nasty and expensive surprises.

  • Use restrictive covenants with care 

Many Federations want restrictive covenants to be put in place that prevent member practices from competing with the Federation. Whilst this is understandable, you need to draft such clauses with care to ensure that they do not breach competition laws.  It is also worth noting that restrictive covenants can have unanticipated consequences, such as preventing member practices from merging with a Practice in, say, a neighbouring Federation.

  • Ensure you have bespoke NHS Articles

The NHS Regulations set out certain requirements around ownership and governance of a primary care entity which can affect a range of matters, including eligibility for NHS pensions. It is important that these rules are embedded in the registered Articles of the company, to ensure that you always remain compliant. If you bought an ‘off-the-peg’ company or used a non-specialist solicitor, these changes will not have been made.

The main point to bear in mind when you are running a GP Federation, is that you are responsible for a regulated entity which is distinct in many ways from both an ‘ordinary’ GP Practice and an ‘ordinary’ company. It is important to ensure that the correct legal documentation is in place. The requirements are often complex, so it’s advisable to retain specialist legal advice, both when establishing a Federation and once it is up and running.

We’ve summarised below some of the key legal documents a Federation should have in place:

At DR Solicitors, as well as providing expert advice on all legal aspects of running a GP Federation, we are also uniquely placed to be able to introduce our clients to an extensive network of healthcare contacts, including specialist accountants, surveyors, banks, and procurement consultants. We aim to help ensure the success of your new business venture.

For more information about GP Federations, or any other enquiries, please contact Nils Christiansen on 01483 511555 or email n.christiansen@drsolicitors.com