As Primary Care changes, we are frequently asked about different business vehicles and in particular whether a GP practice can have limited liability. Choosing the right type of business vehicle for your GP practice is not always straightforward, and managing risk is likely to factor highly in the decision making process.In this article we look at the issue in more detail, explaining the different business vehicles and their potential implications.
Unlimited liability partnership
Most GP practices currently operate as unlimited liability partnerships. This means partners are “jointly and severally” liable in the case of any financial problems. Creditors and other litigants are free to sue all the partners in the partnership to recover their losses, regardless of who caused the problem. What is more, each partner is liable up to the value of the whole of the debt. This means that creditors are able to look to the personal assets of all of the partners until the debt is settled in full or there are no personal assets left. Although your partnership deed will specify how you share profits and losses between you, your creditors will have no regard to this and will typically simply look to find ‘the deepest pockets’.
Although unlimited joint and several liability can be a frightening concept, it has historically not been a major concern for GP Practices since the clinical negligence risks are mostly insured against. However, as practices have become larger and more complex, other risks have become important and need managing or protecting against.
Limited Liability Company (Ltd)
A limited company is the vehicle of choice for most businesses in the UK. A limited company is managed by directors and owned by shareholders. If a limited liability company is unable to pay it’s debts, it becomes insolvent. Creditors are not normally able to ask the shareholders or directors to contribute to losses, so liability is limited to the capital which the shareholders have introduced to the company, plus any other assets (such as retained profits) the company might hold. Importantly, the personal assets of shareholders and directors and generally protected from creditors.
GP practices are, in principle, able to operate as limited companies. However, the consent of NHS England is required to move the GMS or PMS contract to a limited company and they have historically been reluctant to agree. There are also regulatory restrictions about who can own a company delivering GMS or PMS services, which will need to be secured in the Company Constitution. Moving a practice from an unlimited liability partnership to a limited company is not a straightforward process, so anyone thinking of going down this route should always seek specialist legal advice first.
Another way limited companies can be used is to manage the largest risks in the partnership. For example, the surgery could be held in a limited company, while the practice is kept as an unlimited liability partnership. This is a reasonably common model for practices to adopt.
Limited Liability Partnership (LLP)
An LLP is an alternative legal structure that is commonly used by professional services firms, such as accountants and solicitors. It enables a business to operate with a partnership structure (where ownership and management are one and the same), whilst limiting the liability of the partners and protecting their personal assets. As with a limited company, it is a matter of public record how much capital each of the partners have put at risk.
We are often asked about LLPs since they superficially appear to be an obvious solution for GP practices, but they are unfortunately not permitted business vehicles for GMS or PMS contractors. If a practice were to be set up as an LLP, it would put these contracts, staff pensions, and much more at serious risk.
Other options for managing liability:
One route partners may take to gain greater protection for their personal assets, is the purchase of specialist insurance. All NHS GPs are obliged to take out professional indemnity insurance against one of their biggest risks – professional negligence claims. The same approach can be taken to other risks to the financial wellbeing of the practice as well. Possible examples include life insurance, key man insurance, or mortgage repayment insurance.
As discussed above, to the outside world all partners are jointly and severally liable for the losses of the partnership. This can, of course , seem quite unfair so it is reasonably common for Partnership Deeds to provide that partners are responsible for the consequences of their own negligent or unapproved actions. These clauses are called ‘indemnities’.
Whilst fine in theory, the obvious problem with this approach is that if the individual concerned runs out of money, the other partners will still be exposed to the remaining debt. Also, it is often difficult to link a loss directly to the negligent actions of a single individual. More commonly, a problem is a result of a series of unfortunate events, where several people could have intervened, but failed to do so.
Sadly, there isn’t a single, simple solution when it comes to managing liability in a GP practice. All the options we have detailed come with their own difficulties, and we are conscious that as healthcare becomes more ‘commercial’ it is also becoming more risky commercially.
We would always recommend seeking professional accounting and legal advice before making any decisions, to ensure you understand the full implications of the options which are available to you. The ‘right’ answer for your practice will depend on your individual circumstances and your appetite for risk.
For more information, please contact Daphne Robertson on 01483 511555 or email email@example.com
There has been much discussion in recent years about the rise of private GP practices within primary care and it is a subject we are increasingly being asked about by our clients.
Setting up a private GP practice is a complex area and for anyone thinking of taking such a step, there are many issues that need consideration. The priority must always be to ensure compliance with the many regulatory barriers.
Here, we share the first of a series of blogs on this topic.
What are the rules?
The NHS regulations are very clear. A practice providing GMS, PMS or APMS list based services must not charge any of its patients for treatments – regardless of whether these treatments are available on the NHS or not. (There are a few limited exceptions to this rule, which most practices will be aware of).
Setting up a separate business vehicle (eg a limited company) to provide the services may appear a potential solution to this, but it is a risky strategy, as it is highly likely to breach the regulations.
So, what can you do to ensure you comply?
Set up a distance away from your NHS practice
It’s critical you have robust processes in place to ensure that none of your private patients are registered on a list where you are the contractor.
The easiest way to do this is to set up your private practice well away from your NHS practice area. You will still need to undertake checks, but the risk of being in breach will be greatly reduced.
Conduct thorough employee checks
You also need to undergo checks to ensure any GPs you employ or otherwise engage in the private practice, do not have an interest in an NHS list based contract. If they do, then you will need to extend your checks to cover these patient groups too.
One slightly grey area is where a locum GP is providing services for both an NHS practice and a private GP practice with overlapping patient lists. It’s certainly arguable that this breaks the rules, but as the regulations aren’t entirely clear it will depend upon the individual circumstances of each case.
Make sure patient records are kept up to date
Data Protection rules will prevent you from using your NHS practice list to run your checks. You will, therefore, need to ask each private patient to confirm where they are registered and then have steps in place to ensure these records are kept up to date.
If you’re considering setting up in private practice, then bear in mind that the rules associated with this are complex and the consequences of getting it wrong are serious. That said, while the rules are strict, it is possible to put controls in place to ensure compliance. To help you navigate the process, we would always advise you seek the advice of specialist, professional advisers.
For more information, please contact Daphne Robertson on 01483 511555 or email firstname.lastname@example.org
For any major commercial transaction, you need to know exactly what you’re getting into and ensure (as far as is possible) that there aren’t going to be any nasty surprises further down the line.
In the same way that you would call on the services of a surveyor when thinking about buying a house, due diligence when you are merging or acquiring a practice can help you see what’s below the surface and avoid you making a costly mistake.
A GP practice merger or acquisition will typically involve:
- Legal due diligence – which focuses on all legal arrangements associated with a practice; and
- Financial due diligence – which examines the accounts and all financial dealings, usually from the last 3-4 years
For this blog, we are going to focus on legal due diligence.
Who can carry it out?
You may choose to carry out due diligence yourself, or ask your solicitor to deal with it. Using a solicitor has the benefit that everything will be documented in a business transfer agreement, with appropriate legally binding warranties and indemnities.
While certain issues are easy to identify, others are not. An experienced solicitor will know what to ask and recognise potential risks which you will want to know about.
What kind of risks may be identified?
In a GP practice merger or acquisition, the biggest risks will often be associated with:
- the core contract
but there may be others and it is important to undertake suitable investigation and raise enquiries.
Examples of issues you need to be aware of are onerous business contracts, unresolved disputes, and pending or threatened legal actions. Some of these will be documented, but others might not be.
Warranties & Indemnities
If there is any uncertainty, then you have the option to ask for a warranty from the partners, whereby they legally confirm what they have said is true. This may offer some comfort, but you may also want a series of indemnities to protect you from future liabilities crystallising. Just bear in mind that an indemnity is only as good as the financial standing of the person who gives it.
At the end of the due diligence exercise, you should feel confident that you understand any risks and can make one of three choices: accept the position, mitigate the risks or walk away.
Undertaking a merger or acquisition is a big decision. The benefit of due diligence is that it can help you identify early on where the high-risk areas may be. It isn’t something you have to do, but we would always recommend it.
Fortunately, most practice mergers go through without incident and due diligence doesn’t reveal any problems. However, for those unlucky few where a major problem is highlighted, it will have been time and money well spent. Think of a due diligence exercise as similar to taking out an insurance policy.
For more information, please contact Daphne Robertson on 01483 511555 or email email@example.com
A GMS contract is a legally binding agreement made between a GP practice and NHS England (NHSE) that sets out certain obligations for both parties. It is the most important asset a practice will hold.
Running to over 270 pages plus lengthy appendices, it is a substantial and complicated document, both to navigate and understand.
Unless a practice has read it from beginning to end, and has very careful monitoring in place, it is likely that most practices will be in breach of their obligations at some point or another – in many cases, without realising.
So, what can practices do to protect their contracts?
Dealing with a breach
There are many reasons why a practice may be in breach of their GMS contract. Some are minor and some more serious.
If you do become aware of a contractual breach, you should rectify the problem as soon as possible and put procedures in place to ensure it doesn’t happen again. You should then assess the impact of the breach.
An example of a minor breach might be a failure to keep the practice leaflet or website up to date. There is not normally any obligation to inform NHSE of these minor breaches, although a practice would be obliged to provide such information if requested. If NHSE were to find out they would probably issue a breach or remediation notice. Once a practice receives two or more of these, NHSE become entitled to terminate the contract on notice, subject to a cumulative impact test.
For more serious breaches, you may be obliged to notify NHSE. In particular you should notify NHSE as soon as reasonably practicable, of “any serious incident that, in your reasonable opinion, affects or is likely to affect your performance of your obligations under the contract.”
Whilst this leaves room for ambiguity, a breach would certainly be considered ‘serious’ if it put patient safety at risk. An example of this might be a failure of the vaccine fridge, combined with inadequate records to prove that the no vaccines had been compromised.
Once NHSE becomes aware of a serious breach, they would consider whether to deal with it under the breach and remediation notices procedure outlines above, or possibly to terminate the contract forthwith. They could only do the latter, however, if they could show that patient safety was at serious risk.
There are particular notification requirements for breaches where:
- a contractor is no longer eligible to hold a contract – for example, if there is no General Practitioner left in the partnership
- if a partner becomes bankrupt, convicted of a serious criminal offence, is disqualified or suspended, or if a partnership is dissolved
In these instances there is a requirement to notify NHSE, who then need to consider contract termination (although there is not necessarily a requirement for them to terminate).
It is worth noting that while we are talking about GMS contracts in this blog, PMS contracts usually – but not always – have very similar clauses so always refer to your individual contract to be sure.
We advise practices to familiarise themselves with their core contracts and ensure they understand their obligations. Put systems in place to help monitor compliance and if a breach occurs, attempt to remedy the situation as soon as possible and put processes in place to prevent it happening again.
In the case of more serious breaches, for which practices are obliged to inform NHSE, you should let them know as soon as you can, include an impact assessment, and show that procedures have been put in place to reduce the risk of re-occurrence.
The complex nature of the core contract means it is not always clear whether you might be in breach, nor whether you need to notify NHSE. If you are in any doubt about your compliance, the severity of a breach, or if you have received a breach or remediation notice, then always seek the advice of an experienced legal team.
For more information about managing a breach, or any other related issues, please contact Daphne Robertson on 01483 511555 or email firstname.lastname@example.org
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 email@example.com
So how are you faring since the Health and Social Care Act 2012 came into force on 1 April 2013? After a stormy start (which included delays in contract payments for many practices and complications around the new rent reimbursement processes created by a change in landlord for those practices in NHS Property Services owned buildings) the dust has well and truly settled – leaving many GPs grappling to get onto the ‘GP Federation’ ladder in order to supplement their somewhat diminished income stream.
No longer able to rely solely on funding from NHS England, GPs are now, more than ever, having to become entrepreneurs in business – negotiating terms and bidding for new services contracts from the CCGs and Local Authorities.
The tendering process can be long-winded and time-consuming (unless you are unusual enough to be the only potential provider of a particular service). You may well have concluded by now that your best (and maybe only) chance of success in the new world of competitive bids and tenders, is for you to join forces with your neighbouring Practices. You can share the responsibility, liability and workload (both during the bidding process and after the contract has been won) and when done well you can better protect yourself, your colleagues and your patients from the vagaries of the health commissioners.
Many GPs have concluded that federating is the way forward and it goes without saying that you shouldn’t rely on the goodwill of your GP acquaintances and a handshake to seal the terms of your joint working. There are a number of options available to you when setting up a joint venture company and I will be exploring these in more detail in future blogs.