Healthcare Professionals: be careful what you indemnify
Healthcare Professionals – be careful what you indemnify
With the increase in collaborative working and working at scale it is becoming common for the owners of a primary care practice to be asked to provide indemnities, say in a sale or purchase contract or in a merger agreement. But what does giving an indemnity actually mean, and what are the risks to you?
What is an indemnity?
An indemnity contract arises when one person takes on the obligation to pay for any loss or damage that has been, or might be, incurred by another person. It is therefore a promise to make a future payment.
Why might you be asked to give one?
Over the centuries the English Courts have developed common law rules for assessing liability for breach of contract. These rules attempt to strike a fair balance between the interests of the party in breach and the party which is the victim of the breach. The factors which determine such balance include remoteness of causation, foreseeability of loss and mitigation of loss. By asking you to give an indemnity, the other party is attempting to move the balance in their favour.
A 1996 judgement by Lord Hoffman explains the difference in assessment of damages by common law rules and by indemnities:
“A mountaineer about to undertake a difficult climb is concerned about the fitness of his knee. He goes to a doctor who negligently makes a superficial examination and pronounces the knee fit. The climber goes on the expedition, which he would not have undertaken if the doctor had told him the true state of his knee. He suffers an injury which is an entirely foreseeable consequence of mountaineering but has nothing to do with his knee.”
Using the Court’s common law rules for assessing liability, there would have been no liability against the doctor because, although they were negligent, the negligence hadn’t been a factor in the subsequent injury, which was caused by a mountaineering incident unrelated to the knee problem.
If there had been an indemnity in place the Courts might well have found the doctor liable not only for the injury but also for the costs of the expedition, the rescue and all the medical treatment. This is because if the doctor had made the correct diagnosis the mountaineer would never have gone on the expedition in the first place, and therefore wouldn’t have suffered the subsequent injury, paid for the expedition or needed to be rescued.
So should indemnities ever be accepted?
There are certain areas where they’ve generally become accepted by lawyers as being appropriate – such as in a Practice merger and relating to TUPE transfers. Typically, the disposing practice agrees to indemnify the acquiring practice for any employment claims arising during the period before the transfer.
Legal advice should always be sought before binding yourself into an indemnity. A good solicitor would review the wording of the indemnity to ensure it is not unduly onerous. For example, in the case of TUPE transfers, an indemnifying practice should retain the right to defend and settle the claim itself, rather than simply committing to pay whatever is being asked of them by the other party.
Conclusion
Negotiation of contracts generally has little to do with what’s fair or unfair and much more to do with the negotiating strength of the parties. Often any party of whom an indemnity is requested is in such a weak bargaining position that they find it difficult to resist the request.
Although it’s easier said than done, it’s always better to negotiate from a position of strength. In the context specifically of GP practice mergers, if you can see a time in the next few years when it’s going to be necessary to find someone to take over your practice, do it sooner rather than later and try to keep a ‘Plan B’ in the background throughout.
If you have any questions about indemnities or any other queries relating the running of your primary care practice, please don’t hesitate to get in touch with one of our specialist team of expert solicitors. Please call 01483 511555 or email d.robertson@drsolicitors.com
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Due Diligence and Disclosure – A Guide for Healthcare Professionals
If you are thinking of acquiring, merging with or disposing of a primary care practice, then this blog is for you.
Firstly, let’s look at two scenarios. When a patient attends an appointment with his GP, the GP will probably ask a series of questions, conduct a physical examination and review the patient’s medical record. Likewise, when buying a house – you will engage a solicitor to make some pre-contract enquiries, to carry out some property searches at the Local Authority and Land Registry, and you will probably instruct a surveyor to check that the building is sound.
When acquiring a GP practice, there is no analogous method for carrying out a physical examination or survey. Similarly there are no publicly available records in relation to partnerships (and information is scant even for companies). Accordingly, the only effective option for investigating a GP practice which you may be interested in acquiring or joining, is by asking a series of questions of its owner. These questions come in the form of a comprehensive due diligence questionnaire – essentially a checklist – covering the commercial, financial, regulatory and legal aspects of the business. The answers to those questions are critical as they form the only x-rays of the target business that a buyer sees.
Just as x-rays are only as good as the ability of the people taking them and as useful as the knowledge of the people examining the results, due diligence is only as good as the questions asked and the understanding of the people reviewing the answers. Lawyers will have comprehensive due diligence questionnaires; those supplied by accountants tend to focus on finance and therefore may be less comprehensive. Prudent buyers will review the answers received themselves and also have their lawyer and accountant review them.
Just as the occasional patient might be less than honest with a doctor in an effort to obtain a particular prescription, business owners have been known to be economical with the truth when answering due diligence enquiries. A problem arises in this regard for buyers, because a peculiarity of the English law of misrepresentation means that a buyer probably cannot place legal reliance on the answers to due diligence enquiries. So why bother with it at all?
Fortunately, to overcome the problem, a buyer’s solicitor will ask the seller to give a series of warranties to the buyer concerning the state of the target business. Breach of those warranties is directly actionable in law and therefore avoids the legal problems related to misrepresentation claims. Warranties are a comprehensive series of statements about the business included in a business transfer agreement prepared by the buyer’s lawyer.
Why then do lawyers not proceed directly to warranties and cut out the due diligence enquiries altogether? Making due diligence enquiries and reviewing the answers is a relatively inexpensive process conducted at the outset of the transaction and therefore, with honest sellers at least, it flushes out any potential problems with a business cheaply and early on in the process.
Warranties differ slightly from guarantees and are essentially a checklist in the form of statements that could be made unqualified in relation to a (mythical) flawless business. To the extent that there are exceptions to the warranties the seller needs to reveal them to the buyer in a disclosure letter. This process is best illustrated by an example.
A warranty that is typically included in a business acquisition is one to the effect that the business is not currently a party to any litigation. If the business is, in fact, in the middle of a court case then the seller needs to disclose that information to the buyer in a disclosure letter, setting out the full facts of the case (dates, parties, nature of claims, nature of defences etc) and attaching copies of the relevant documentation. If the seller fails to make this disclosure then she will be giving an unqualified warranty to the buyer that the business is not involved in any litigation. Because that warranty will be untrue, it will be actionable in law by the buyer. There is therefore a considerable onus on sellers to make full and proper disclosure for fear of otherwise leaving themselves open to legal action. Warranties therefore force sellers to reveal in disclosure letters matters that they might have preferred to leave hidden and which they may not have revealed in response to due diligence enquiries.
In a well-managed transaction nothing will emerge in the disclosure letter that wasn’t already revealed in the answers to due diligence enquiries. There is therefore considerable overlap between due diligence and disclosure, leading many people to conflate the two. This is a mistake, as they are entirely different processes. Due diligence enquiries and answers are essentially an information-gathering process from which few adverse consequences can befall a seller. Warranties and disclosures, on the other hand, form the main protection available to a buyer so that she knows what she is buying ‘warts and all’ and forces the seller, on pain of legal action, to reveal all instances of human papillomavirus infecting her business. As with all documents which you may one day need to rely on in court, you would be well advised to speak to a specialist solicitor before signing any warranties and indemnities!
If you are thinking of acquiring, joining or merging with a practice and would like a free consultation with one of our experienced healthcare solicitors, then please contact Daphne Robertson on 01483 511555 or email info@drsolicitors.com
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The NHS Long Term Plan: How will GP practices be impacted?
There is a tendency when new plans come out of the NHS for people to say they have seen it all before. Would this be a wise response to the Long Term Plan?
Pleasingly, there is an acknowledgement of the many issues in primary care and a commitment that investment in primary medical and community services will grow faster than the overall NHS budget. Spend should be at least £4.5bn higher in 2024, but the extra money will come with strings attached. If applied consistently, this will mean further change is coming for many GPs in England.
The Network Contract
A new ‘Network Contract’ will route the additional monies and will also incorporate local enhanced services currently commissioned by CCGs. This Network Contract will be in addition to existing GMS, PMS and APMS contracts. ‘Primary Care Networks’ (PCNs) will be responsible for these contracts and will typically cover 30-50,000 patients. Each network will be responsible for expanded community multidisciplinary teams along the lines of the Integrated Care Vanguards. The obvious question is, who will actually hold (and deliver) these contracts? In some parts of the country GP Federations are sufficiently developed to do so, and could then subcontract services to member practices or to other service providers as appropriate. In other areas super-partnerships are sufficiently large and geographically contiguous to do so, though they may be concerned about using their unlimited liability partnerships to do so. Elsewhere again, it is possible that existing community health providers may look to lead.
What is clear is that the Network Contract is supposed to facilitate ‘integrated community-based health care’ and all new money in primary care will flow that way. We are told that practice participation will be voluntary, but it is hard to see how practices will remain financially viable in the medium term if they do not participate.
Online GP consultations
Digital-first primary care will become a new option for every patient. Over the next five years every patient in England will have a new right to choose telephone or online consultations instead of face to face consultations. The plan states this will be ‘usually with their own practice or, if patients prefer, with one of the new digital GP providers’.
The plan goes on to say that a new framework will be created for digital suppliers to offer their platforms to primary care networks on standard NHS terms. It is therefore unclear whether the digital providers enabling online consultations are supposed to be suppliers of services to networks of GPs, or will be able to hold patient lists themselves.
Our recommendations
It has been clear for some time that any increases in funding will go to practices working at scale. Scale working has now been formalised into PCNs . In those areas of the country where there is already an obvious PCN in existence, the immediate focus should be on working out which approach to use for online consultations. Where there is not currently any single obvious PCN, practices would be well advised to reconsider their local joint working arrangements: be that though through federations, mergers, primary care homes or the like.
Remember that the new Network Contract will need to be held by an appropriate business vehicle (there is no indication yet of any restrictions on who could hold them) so you will need to consider who will be the local prime contractor.
We would be delighted to discuss how we can help practices and PCNs prepare for the imminent changes. Please contact Nils Christiansen in the first instance for a no obligation conversation about how we can assist.
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Due Diligence – is it worth the effort?
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:
- property
- the core contract
- staff
- pensions
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.
Our recommendations
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 d.robertson@drsolicitors.com
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Dealing with property in a GP practice merger
There is a lot to think about when merging practices. Issues include transfer of staff by TUPE, creating joint accounts, agreeing profit shares, drafting a new Partnership Agreement, aligning ways of working, dealing with the CQC and NHS England, and more.
With so much to think about and with limited time and resources, merging practices are often tempted to put the properties to one side to be dealt with later. In this post we explain why it’s best to have a plan for managing property issues from the outset.
But nothing is going to change?
We are often told that the surgeries will ‘just stay as they are’, or that their ownership can be kept outside of the new partnership. However, it’s not that simple and by taking no action you risk hitting problems later.
A merger involves changing business vehicles. Generally speaking, two or more partnerships become a new, single partnership and most of the legacy business vehicles disappear. Each of the legacy partnerships would have had rights of occupation in their surgery, whether as tenant, licensee, owner occupier, or some combination of all these. Post merger, even if exactly the same partners and staff are working in each building, the occupier will be the new merged partnership.
The consequences of this are significant. Regardless of who has their name on the title at the Land Registry and whether the surgery is freehold or leasehold, the new partnership will acquire rights and obligations associated with the building from the very first day post merger. Examples can include; rights of occupancy; tax liabilities; problems with NHS premises funding; implications for mortgage financing; breaches of covenants, and; unexpected changes in value.
Such problems typically lie ‘dormant’ for some time, before emerging and creating a crisis. When this happens and has the inevitable financial consequences, the partners who were around at the time of the merger may be long gone and it becomes difficult to attribute the resultant costs.
Some questions you need to consider:
- How are the premises currently owned and occupied?
- How will they be owned and occupied following the merger?
- Will any premises be closing and if so, what are the implications?
- Do you need to seek prior approval from NHS England for changes in occupancy/use? (see our article Don’t put your premises funding at risk)
- How are the new owners/occupiers going to be tied into any leasehold obligations?
- How will the changes impact on any mortgage financing and do you need mortgagor consent?
- Do you need to obtain landlord’s consent?
- Is there an impact on the amount of premises funding?
- Tax impacts, such as, stamp duty land tax (SDLT), capital gains tax)
Our recommendations
Our advice is to do your homework in plenty of time before the merger and ensure you undertake appropriate due diligence on all the properties involved. Once you understand the implications of the proposed changes you can consider your options for mitigating the problems. Doing nothing is certainly an option, but it is unlikely to be the best one.
Remember that the Surgery is almost always the most valuable asset in a GP Practice. It therefore pays to get professional advice to protect it and maximise its value.
For more information about practice mergers, property, or any other enquiries, please contact Daphne Robertson on 01483 511555 or email d.robertson@drsolicitors.com
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Managing conflicts of interest when you’re an officer of a GP federation
As GP federations have become more established, we are receiving an increasing number of enquiries about the role of the federation’s officers.
Most GP federations are organised as limited companies, with shares owned by the member practices. The role of the federation is generally to secure and manage healthcare contracts for their area, which will typically be delivered by some or all of the member practices.
Like any other limited company, a federation and its activity will be overseen by a board of directors. These officers will be governed by certain statutory and fiduciary responsibilities, which will guide how they need to act in relation to the federation and its member practices.
Where it gets complicated is that the directors of a GP federation are typically also partners in a member practice, as well as shareholders in the GP federation. Each officer, therefore, needs to fulfil a number of roles at any one time, each of which carries its own legal and contractual obligations, and sometimes these may conflict.
Another consideration is tax. With income from the different roles being taxed in different ways, it is important to be able to demonstrate that money flows are based on the needs and obligations of the role, not as a way to avoid tax.
Responsibilities of a Director
Company Directors are the agents appointed to act on a company’s behalf, and have statutory responsibilities to act in the best interests of the company as a whole. The statutory responsibilities of a director are set out in the Companies Act 2006, and it is important that all directors are familiar with these. Some of the key points are to remember that a director must act within the powers delegated to them, must do so with reasonable skill and diligence and must avoid conflicts of interest. The bar is not set especially high, but directors should be aware that failure to meet these obligations can result in a variety of sanctions against them personally. Other responsibilities of the directors may be set out in the company’s Articles or in an agreement between the shareholders. Directors of a limited company are employees and are paid through the payroll, and if a GP federation is trading the directors will need to commit some time to it in order to fulfil their responsibilities.
Responsibilities of a Shareholder
The shareholders are the owners of the GP federation and will usually have committed some of their own capital to the business. Shareholders should provide strategic control over the company and guidance to the directors. The shareholders act through General Meetings, and have a small number of statutory powers such as removing directors and changing the name of the company. Any other powers retained by the shareholders are normally set out either in the Articles of the company or in a shareholders agreement. These documents are particularly important where the shareholders and directors are not identical. Since the ‘real’ shareholders of a GP federation are normally all the partners in the underlying practices (rather than the ‘nominee’ shareholder on the share register), it is rare for a GP federation to have identical ‘real’ shareholders and directors. It is important that all the partners understand their role as shareholders, and have a mechanism in place for the nominee shareholder to vote on their behalf. This mechanism is usually set out in a ‘deed of trust’ between the partners in a practice, or within their partnership agreement. Shareholders are not ‘paid’ for any work they do, but they may receive income through dividends on the share(s) they hold.
Responsibilities of a Partner
The responsibilities of partners are as set out in their partnership agreement and the Partnership Act 1890. These can generally be summarised as acting in good faith towards each other and in the overall best interests of the partnership. This means that a partner who is also a director of a GP federation must act in the best interests of BOTH the partnership and the GP federation. Partners are self employed for all income earned through the partnership.
There can be times when these obligations do not align, which opens the door for conflicts of interest to arise.
Conflicts of Interest
Take the example of a GP federation director who is also a partner in a member practice. If a contract is won by the federation to provide a joint service it may be in the interest of the partner’s practice for them to deliver the service, as they would be paid for doing so. However, another member practice may be better equipped to deliver the service or be able to do so more cost effectively. Who should get the work?
Alternatively, a director may find that it is more tax advantageous to be paid as a partner in the member practice, or indeed as a shareholder taking dividends. How should they account for their time spent meeting their obligations as a company director?
Putting steps in place to protect yourself
For any officer, being able to clearly demonstrate how a decision was reached and why you behaved in a particular way is key to managing potential conflicts of interest.
There are steps you can take to do this, including:
- Shareholders’ agreement – this should specify which decisions are to be retained by the shareholders, the terms under which dividends are to be paid, and the mechanisms by which shareholders reach agreement
- Company Articles – these should be checked to ensure they are consistent with the shareholders agreement, as well as any NHS Regulatory requirements
- Directors’ service agreement – each director should have a service agreement describing their role, responsibilities and remuneration
- Partnership agreement/deed of trust – in addition to setting out the ‘normal’ responsibilities in a GP partnership, these documents should explain the role of the nominee shareholder and contemplate the potential conflicts of a GP federation director.
- Minutes – Minutes should be kept of practice partnership meetings, company shareholder general meetings, and GP federation board meetings
Due to the nature of a GP federation, conflicts of interests are almost inevitable. Your best protection will be to understand what each role entails including its statutory and contractual obligations.
Then, by formally documenting each role and process, you will be able to better justify why things happened as they did. You’ll have a way to explain your actions and the context when a conflict arises.
For more information about GP federations, partnership agreements and any other related issues, please contact Daphne Robertson on 01483 511555 or email d.robertson@drsolicitors.com
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Dealing with the CQC during a practice merger
Merging your Practice is a major decision and there are many factors that you need to consider before taking the plunge. (For more details, see: When is a GP practice merger not a merger?)
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Don’t put your premises funding at risk
Premises funding is a complex area for any GP practice to navigate.
There will be times when you need to obtain prior consent from NHS England (NHSE) in order to secure funding, and other times when you are simply required to inform them of changes.
Failure to seek consent when it is needed or to notify certain changes can put future premises funding at risk, or even result in NHSE looking to recover any overpayments.
To help you understand what is required, we’ve taken a look at some of the most common events in a practice which may have implications on your premises funding and explain what you need to do:
Top trigger events:
1. Partner retirement
If an owning partner retires and is not bought out, he/she will cease to be an owner-occupier. This has implications if you are in receipt of notional rent, which is only available to owner-occupiers. In this situation, it’s best to inform NHSE well before the retirement date to confirm that they will continue paying notional rent for the whole building, while at least some of the partners remain owner-occupiers.
2. Refinancing
If you are in receipt of cost rent (borrowing cost funding) then you must make an application in writing to NHSE if you are looking to change your mortgage lender, or advise NHSE following a change in the rate of interest you are being charged.
3. Premises development
If you’re planning any building works for the development of your premises, then you must not start work without first agreeing the work with NHSE. Similarly, if you are purchasing a property with a view to using it as a surgery, then don’t sign anything binding, such as a purchase contract, without the prior agreement of NHSE. In both these scenarios, if you proceed without prior consent, NHSE are within their rights to refuse to consider any subsequent grant or funding application.
If you receive any tax allowances when developing your premises, these must also be disclosed to NHSE, who may off-set them against any premises development or improvement grants.
4. Sale and leaseback
Before agreeing a contract for the sale and/or leaseback of the surgery to a third party, ensure that you have confirmation from NHSE that they are in agreement with the arrangement. NHSE is not permitted to fund the rent reimbursement unless they have agreed the contract before it is signed.
5. Registering for VAT
If your practice is VAT registered – or you are considering registering – then you must disclose any relevant recovered VAT to NHSE so they can off-set such sums against your premises funding.
6. Rent review
Unlike most other applications for premises funding, rent reviews do not have to be agreed with NHSE in advance. In fact, you will first need to agree the rent review with your landlord, before seeking NHSE’s agreement to reimburse the new rent. Clearly, this leaves the practice at risk of a shortfall if NHSE do not agree with the amount of the new rent. This was a change introduced in the 2013 Directions and it continues to be controversial.
7. Lease renewal
NHSE needs to confirm that any new or varied lease represents ‘value for money’. All new and varied leases should, therefore, be sent to NHSE for their approval before they are signed.
8. Practice closure
Premises funding is tied to your GMS or PMS contract. If you close your practice, your premises funding will cease on the day your contract terminates. Your building related obligations will, however, normally continue. The mortgage must still be paid, the rent paid, and the heating system maintained. If you have received development grants, these may have to be repaid at least in part. Some leases permit the building to be sublet, but if not you may well be tied in for many years with no possibility of an income stream to offset the rent. We have written more about this issue here.
9. Mergers
Practice merger discussions often tend to focus on the partnership elements, and ignore the premises. This is usually justified because ‘the buildings will stay as they are’ or ‘the buildings will be outside the new partnership’. This may seem like a simple solution, but can create multiple problems for the future which we will be considering in more detail in a future article. Specifically regarding the premises funding, it is common for mergers to change the legal nature of the occupancy of the surgery, perhaps by creating an undocumented lease arrangement where none existed before. Even where such arrangements are undocumented, they would normally still require the prior approval of NHSE.
Conclusion
The Premises Costs Directions require that you must give NHSE any information they ask for and may need, in order to accurately calculate the amount of financial assistance to be provided. If you are in any doubt as to whether you need to notify NHSE or not, we’d always recommend that you seek professional legal and/or surveyor advice.
For more information about premises funding, or any other enquiries, please contact Daphne Robertson on 01483 511555 or email d.robertson@drsolicitors.com
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How to set up a successful GP federation
GP federations are a way for practices to work together, with shared responsibility for delivering high quality and patient-centric services to the local community.
Their popularity is on the rise and with most CCGs supporting the concept, many practices are being encouraged to consider going down this route. But before doing so, there are some key issues that need to be addressed. The most important of which, is why do it?
To be successful, you firstly need to understand what the purpose of the federation is going to be. For most, it will be to provide services on a scale that a single practice could never achieve. For example, covering a wider geographical area, or larger population. Often one practice alone will not have the skills set or resources needed to deliver this or to afford the investment it may require.
Once you have established the federation’s purpose, you need to find a group of like-minded practices, who share your vision and will be a good ‘fit’ to work with.
The business model your federation will follow is another key issue to address. Many of the federations we work with, choose to create a limited company with shareholders. The reason being that it offers a lot of flexibility is well understood and they will benefit from limited liability. In addition, if it has been structured correctly then the limited company will be able to hold GMS and PMS contracts, and provide NHS pensions to its staff and officers.
A main alternative route would be to set up a limited company as a regulated social enterprise (such as a Community Interest Company). For more advice on these two options and what the implications may be, see our blog The Benefits of a Social Enterprise versus Profit making Company
Organisational structure
The usual structure followed by a GP federation will be for shares in the limited company to be held on trust for the member partnerships, by one partner from each practice. It’s important that this relationship is documented in the partnership arrangements of each member practice.
Typically, the capital contributions, dividends and the value of each share will be linked to the size of the practice list. Other models are available, such as the number of partners, but are far less common. Voting rights may also depend on list size, but more typically they will work on a vote per practice, or follow a weighted voting structure.
Directors of a federation
Directors needed to be appointed who will act on behalf of the federation – not solely in the interests of their own member practice. These directors should be chosen by the shareholding practices. For smaller federations, there will often be one per member practice, but in larger federations, this isn’t normally advisable as it can become unmanageable.
Most directors will be drawn from the partners in the member practices, but this does not need to be the case. Some of the more successful federations look externally to hire in experienced directors, with the aim of helping to drive the federation forward. This does, however, come at a cost.
Rules and rights
It’s important to draft a shareholder’s agreement which will set out all the rules for any important matters, such as joining and leaving the federation, valuation of shares, voting rights and processes, restrictive covenants and delegation of responsibilities to directors.
Another aspect that needs documenting is the relationship between the member practices and the federation. Usually, the federation will hold the contracts with the commissioning body (such as the CCG, local authority, or trust). These contracts will then be delivered by the member practices. One benefit of this is that the federation will have no need for employed staff and if it isn’t providing the services itself, it won’t require CQC registration.
A disadvantage is that the relationship between the practices and the federation will be quite complex, because you need to think ahead and plan for any potential problems that may arise. The commissioning body would look to the federation if there is a problem with delivery, who in turn would look to the practice. This means there needs to be a documented sub-contract relationship and any contract held by the federation needs to permit this.
It can also cause problems for pensions from the associated income being passed through the federation, so you need to take specialist advice in this area. Additionally, it is important to think about who needs to hold professional indemnity insurance.
The secret of success will always come down to thorough planning and having the right professional advice to ensure you navigate the complexities of the process and protect your interests.
For more information about forming a GP federation, or for any other enquiries, then please contact Daphne Robertson on 01483 511555 or email d.robertson@drsolicitors.com
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Is a Super Partnership right for your GP practice?
How GP practices can best work together at scale to deliver effective care has been the subject of much debate in recent years. Traditionally, when practices worked together it was more informal and mergers may have involved just one or two practices. However, one model that has emerged and continues to grow in popularity, is the so-called ‘super partnership’.
The term generally applies to multiple practices who merge, or choose to work as, a single entity. Some of the largest super partnerships contain over 100 partners and provide care for over a quarter million patients.
So, why are more and more practices considering this route?
Benefits of a super partnership
Joint working in this way offers many potential benefits for practices, mainly due to economies of scale. These can include:
- Increased role specialisation
- Shared services, such as HR and finance
- Negotiating lower prices when purchasing goods or services
- Shared cost of investment, for example in premises, technology, staff and services
- The potential to increase income by bidding for larger contracts and additional services
- A strong single ‘voice’ on all important matters affecting the practice and patients
- Support with issues of recruitment and retention, as the scale of a super practice can provide a broad and varied career ladder
What are the options?
Although every super partnership will be unique, we discern two main models for how a super partnership forms and operates:
1. Centralised partnership
This is a partnership which effectively operates as a single unit. Each practice will be responsible for managing their own costs, but most other things will be shared.
Common features of this type of partnership include:
- GMS/PMS contracts will transfer to the super partnership and merge together
- GMS/PMS contracts cannot be easily be attributed to a practice
- It will operate with a single set of accounts
- There will be a full sharing of profits, usually based on scheduled sessions
- There will be a sharing of costs and staff, who will transfer to the super partnership
- A cost centre manager based at each surgery will report to the super partnership
- The partners have full joint and several liability for the partnership, regardless of which practice they work in.
- All partners will be subject to the same partnership terms
- There is usually a management board of partners who have reduced or no clinical responsibilities
- No automatic right for a practice to withdraw
2. De-centralised partnership
In contrast, under a de-centralised partnership, each practice will operate as a separate business unit and be highly autonomous.
Common features are:
- The GMS/PMS contracts will transfer to the super partnership but won’t be merged so will be directly attributable to each practice
- Surgery buildings will be kept separate, with licences to occupy put in place
- The accounts will largely be kept separate with a very limited sharing of profits
- Each practice will retain the ability to ‘hire and fire’ staff
- Cross Indemnities will limit joint and several liability
- Separate policies for issues such as profit share, sessions and absence for each practice
- Shared control over partner admission and expulsion
- A Management Board exists, but the roles are not usually full-time and comprise elected partners who still retain clinical responsibilities
- Individual practices will have the right to withdraw
Key issues that need consideration when deciding whether to join a super partnership include concerns over surgery premises, tax implications, pensions, the sharing of information and the type of organisational, contracting and legal model that will be followed.
Overall, it is a complex process which requires a great deal of planning, so always seek the advice of an experienced legal team to ensure your best interests are protected and to help ensure your objectives are met.
For more information on this issue, please contact Nils Christiansen on 01483 511555 or email n.christiansen@drsolicitors.com