Helping you manage the ‘growth’ phase of your PCN
PCNs have been incredibly successful. Established in 2019, the focus was on getting the whole of England moved into PCNs at speed and Primary Care delivered impressively. Many PCNs proved their worth through the Covid vaccine delivery programme. Now that PCNs are a few years old, they are finding it challenging to manage risks and rapid growth. PCNs need to find a new, more sustainable way of working – we call it the ‘managing growth’ phase.
How should PCNs organise for success in the managing growth phase?
- What are the key issues to be resolved in the managing growth phase?
- Three options available to address the challenges
- Is it time to incorporate?
What are the key issues to be resolved in the managing growth phase?
- There is often an imbalance of risk in the lead practice model. One practice usually takes on more risk than others and is forced to rely on contractual indemnities in the event something goes wrong.
- Other ARRS employment models generate inequalities between PCN employees,
- as they will be employed by different practices under differing employment terms and conditions.
- PCNs are beginning to attract funding streams beyond the PCN DES. Since PCNs are not a legal entity they are unable to contract for these funds.
- The core network practices are normally unlimited liability partnerships. In the event something goes wrong in the PCN, each member practice will have only moderate influence and control, but unlimited liability.
- There is a growing risk that contractual PCNs will become accidental ‘partnerships at will’. The Covid funding and IIF monies significantly increase this risk because these funds are not expense reimbursements.
- Irrecoverable VAT can easily be generated in a contractual PCN model, and is a growing risk as the PCN grows and evolves.
PCN’s need to move quickly into the managing growth phase and update their management structures and contracts characteristic of a well-run business. Some PCNs will already have set these up as part of their contractual arrangements, but there is a limit to how far this can go. PCNs need to think about adopting more traditional business structures and the built-in governance which comes with them.
Three options available to address the challenges
If you accept that the risks and problems of a contractual PCN are increasing, at some point you need to find a ‘better solution’. In our experience the tipping point is usually when you conclude that PCNs are going to be around for the foreseeable future, and then you generally have 3 choices:
- Merge the core network practices
If all the core network practices merge into a single ‘super-practice’, everything becomes internalised within the business and most PCN problems disappear. Some lucky practices were large enough to form their own PCNs from the outset, but this was not an option for most. However, just as sensible people don’t get married for the tax benefits, practices should be very wary of merging just for the PCN benefits.
- Sub-contract with a GP Federation or other 3rd party
It can be an attractive option to sub-contract all of the PCN activity to a third party such as a GP Federation. They are able to bring management expertise, employ and deliver resources as required, and help with PCN administration. They have a ready-made contracting entity, and will already have addressed problems like the NHS pension.
If well structured, GP Federations can also often get around the VAT issues.
- Incorporate the PCN (set up a PCN Co)
Incorporation is when the PCN core network practices set up their own company to deliver services for their PCN. In some ways this resolves issues in the same way as sub-contracting to a Federation, but with the key difference that a GP Federation is usually controlled by many more practices than those in the PCN. A single PCN is therefore unlikely to be able to ‘control’ the Federation and any services provided will necessarily be more arms-length.
Very few PCNs will decide to merge their core network practices, so most will choose between options 2 and 3. This is essentially a choice between as required, and help with PCN administration. They have a ready-made contracting entity, and will already have addressed problems like the NHS pension.
If well structured, GP Federations can also often get around the VAT issues.
Is it time to incorporate?
What are the benefits of incorporation?
If done properly, incorporation can solve many of the issues faced by PCNs. All PCN staff and costs are moved from the member practices into the company, and the company runs as a non-profit making business providing services back to the core network practices. Risks are contained within the limited liability company, and the problem of irrecoverable VAT can be avoided by setting up a ‘VAT Cost Sharing Group’.
The governance can be defined to mirror the existing PCN governance, and a much greater deal of transparency can be provided over the money flows. The company can enter into contracts for additional non-DES funding streams, and can also act as a shared service centre between practices for non PCN DES related activities such as shared reception, admin etc.
What are the challenges?
Establishing and running a company has a cost, requires reporting
and disclosures to Companies House and NHSE, and adds a layer of complexity in the event PCNs cease to exist. You may also encounter issues with VAT, the NHS pension, the CQC, and potentially with the agency worker regulations unless you set it up carefully. Companies are also taxed very differently to partnerships. In short, they are not something to be embarked on lightly, or without proper advice.
Is incorporation right for my PCN?
The incorporation model looks increasingly attractive to those PCNs that are employing staff themselves or who want to secure additional PCN-level income streams.