Beware the ‘Last Man Standing’ Issue in GP Practices
The ‘last man standing’ issue refers to the concern that one or more partner(s) will be unable to retire from a GP practice when they want to, because they are unable to divest themselves of the various liabilities and obligations of the practice.
The issue tends to arise when there are problems in recruiting GP partners, significant numbers of GPs looking to retire or emigrate, or when there are particularly onerous practice liabilities.
The most common type of last man standing problems are associated with surgery leases and mortgage redemption penalties, but they can be triggered by any onerous contractual obligation or unfortunate event such as a death in service or a property market crash.
How the ‘last man standing’ issue destabilises practices
A useful analogy is with a run on a bank. Normally you are happy to deposit your money, confident in the knowledge that you can get it back on demand. However, if enough people want to withdraw their money at the same time the bank cannot raise enough cash to pay them all out and it goes bust.
Similarly, if a GP partner gets concerned that one or more of their partners may be considering leaving and there is no obvious succession plan, they will start thinking about the likely costs of closing the practice and consider leaving while they still can.
Well-drafted partnership agreements normally seek to restrict their ability to do so by requiring a gap between retirements. If a retiree is not replaced in that gap or a partner leaves on other grounds however, the remaining partners may find themselves part of a rush to be the next to resign.
Once this process starts, it is difficult to get confidence back. It becomes even harder to find replacement partners, and ultimately the accountants start wondering whether the business is still a going concern, i.e. able to survive. They may then decide that it is prudent to accrue for the potential liabilities, worsening the financial position of the practice and hastening its demise.
Look after number one: beware the ‘last man standing’
There are multiple ways to reduce the risk of a practice suffering the last man standing problem:
- Be part of a larger practice; small practices only need to lose one or two partners to be at risk, whereas larger practices offer more room for manoeuvre
- Ensure the partnership agreement defines a minimum 6 month gap between permitted retirements
- Maintain a sinking fund for repairing obligations under the lease and other unfunded practice obligations
- Try to negotiate a break clause in your surgery lease for events such as termination of the GMS/PMS contract, but remember enforceability of such clauses can be an issue
- Ensure that you are always in compliance with the terms and procedures of your lease or mortgage; particular risk points are the arrival or departure of a partner
- Take out insurance against specific risks such as an inability to pay the mortgage
- Consider a practice merger to share and thereby reduce the risks
If the last man standing issue appears to be rearing its head in your practice, seek professional advice early. The sooner you get help, the more likely you can prevent it. Once it starts, it can quickly become like catching a falling knife.
Reducing the risk of the ‘last man standing’ is one of the issues which need to be considered when negotiating a surgery lease. Other issues are identified in our free guide, Top 10 Tips When Agreeing a Surgery Lease.