Trusts in Primary Care: Do you need to register with the Trust Registration Service?
Regular readers of our blog will be aware of the Trust Registration Service and the recent requirement to register all ‘express trusts’. DR Solicitors have recently worked with the GPDF to help prepare guidance on the various trust relationships which exist in primary care, and the circumstances under which such trusts may be registerable. The guidance can be found in full on the GPDF website.
The guidance explains:
“A trust is a legal relationship by which one or more ‘Trustees’ hold and manage assets (such as money, investments, land or buildings) on behalf of one or more other people (the ‘Beneficiaries’), and may be created (whether expressly or by operation of law) for convenience or through necessity.
There are a significant number of trust relationships in primary care, generally created by necessity as a substitute for a ‘missing entity’ – particularly in the case of GP partnerships and Primary Care Networks (PCNs). The most common of these trust relationships relate to the ownership of a practice’s surgery, a PCN’s Bank Account, and shares held by GP partnerships in Federations or PCN companies.
Express trusts and taxable non-express trusts must now be registered with the Trust Registration Service (TRS), but the majority of such trusts in primary care settings will be able to benefit from an exemption for “public authorities” and will not need to be registered. In addition, a smaller number of such trusts will be able to benefit from an exemption for “legislative trusts”. It is therefore likely that only a small residual minority of primary care related trusts will need to register with the TRS.”
We recommend that all practices and PCNs read through the guidance to ensure that their particular trusts are likely to be covered by one of the exemptions, and for the minority of trust relationships which are not exempted to seek support from their professional advisers to assist in the registration process.
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PCN sub-contracting: new NHS template and factors to consider
NHS England have recently published a template sub-contract for PCN DES services https://www.england.nhs.uk/publication/subcontract-for-the-provision-of-services-related-to-the-network-contract-directed-enhanced-service-2022-23/
Many PCNs do not seem to realise that when buying in clinical services (as opposed to employing ARRS resources themselves) member practices are creating a sub-contract of their GMS/PMS/APMS contracts. This is true whether the supplier is a GP Federation, a PCN Company or an entirely separate third party.
Most PCNs rely on securing at least some of their resourcing from these providers, and yet many PCNs seem relaxed about documenting this significant relationship through informal SLAs, supplier provided contracts, wording in their PCN Schedules or in some cases, leaving the arrangement completely undocumented. In reality these sub-contracts are critically important in managing the risks for member practices, as a service delivery problem with a sub-contractor can lead directly to a breach of the GMS/PMS/APMS contracts of all the member practices. Having a poorly drafted or non-existent agreement might itself constitute a breach, since practices are required to include a number of important obligations in all sub-contracts to comply with their own contracts.
With the imminent transfer of responsibility for Enhanced Access, many PCNs will be looking to continue this service with the current providers, at least for the time being. This arrangement will also be a sub-contract and it may not be possible to continue the service provision in exactly the same way as before due to regulatory constraints. As a minimum however, a proper sub-contract should be put in place, and for those who have not already done so, the new NHS template PCN sub-contract would probably be a good starting point.
PCNs should bear in mind however that the published document is just a template, and like all templates it needs to be populated and tailored to the particular situation. It also needs to be amended to reflect the different requirements of each party: put bluntly, practices will want to ensure that as many of their risks as possible are passed on the sub-contractor, and the sub-contractor will want to achieve the opposite. It is important that this is taken into account when completing and negotiating the agreement. It is important to remember that, unlike GMS or PMS contracts, PCN sub-contracts are negotiable, need to be negotiated with the supplier, and the template might not suit all circumstances.
Whether or not you use the new template as a starting point, we would strongly recommend that you take specialist advice on all sub-contracting arrangements before entering into them.
For further information on sub-contracting or on any other legal issues, please contact Nils Christiansen on 01483 511555 or email enquiries@drsolicitors.com
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How might the new Trust rules impact primary care?
The Trust Register was introduced in 2017 and at that time, no registration was required for those trusts which did not pay tax. New rules were introduced on 6 October 2020 as part of anti-money laundering and counter terrorism measures, which significantly extended the scope of the register. The deadline for registration is 1 September 2022, however the situation is complex and HMRC have only recently issued guidance on how the new rules will apply.
On the face of it, many practices and PCNs may unfortunately get impacted by the new rules. The underlying problem is that neither partnerships nor PCNs are legal entities which are capable of holding assets in their own name which forces them to hold assets in the names of nominees. In normal circumstances this nominee arrangement would be a ‘trust’ relationship, and therefore potentially subject to the new rules.
The three most obvious examples where trusts are commonly used by primary care medical practices are:
- GP Surgery premises where partners jointly own the freehold or long leasehold building(s):
- Shares held by a GP partnership in a GP Federation or PCN company
- PCN nominated bank accounts where a practice is holding funds on behalf of other PCN member practices
It is important to state that the position is still unclear and there is currently conflicting advice available. DR Solicitors are therefore contributing to the production of some national guidance for primary care, which we hope will be issued soon.
One of the reasons that the issue is receiving a great deal of publicity is that there are financial and criminal penalties for failing to register. However we would direct concerned practices to the website of the Institute of Chartered Accountants in England and Wales which contains some helpful information from HMRC on initial failure to Register or late registration:
In recognition of the fact that the registration requirement is a new and unfamiliar obligation for many trustees, there will be no penalty for a first offence of failure to register or late registration of a trust. The exception is when that failure is shown to be due to deliberate behaviour on the part of the trustees. In that case, or where there are repeated failures, a £5,000 penalty may be charged per offence.
In practice, this means that, should HMRC become aware of a trust which has not been registered by the relevant deadline – either because that trust has been registered late or because HMRC has identified that trust’s existence by other means – HMRC may issue a warning letter to the trustee or agent. It would usually only charge a penalty if that letter were not acted on.
The website contains other relevant information and can be accessed at: https://www.icaew.com/insights/tax-news/2022/aug-2022/hmrc-updates-trs-manual-in-advance-of-1-september-deadline
We will be issuing more guidance on this subject very soon, so please stay subscribed to the blog.
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Should GPs worry about Directors’ Liability?
When we incorporate PCNs or GP practices, one of the most common questions from concerned GPs relates to the liability they might pick up if they become a director of the incorporated company. In this blog, we look at how real the risks are to company directors, and whether or not you need be concerned.
Financial risk
At a very basic level, it is worth remembering that liability is limited in companies but is unlimited in partnerships. So, if a partnership has assets of £60,000 and £100,000 of creditors, then the partners have personal liability for the shortfall. If a company has assets of £60,000 and £100,000 of liabilities, then the directors can liquidate the company, whereupon the £60,000 of assets are sold and the proceeds distributed to the creditors, leaving the creditors short by £40,000. In other words, in a partnership structure the partners lose out if there are insufficient assets, whereas in a company structure the creditors lose out. This is the very essence of limited liability and is why limited companies come with more onerous rules than unlimited partnerships.
In the above scenario, the shareholders of the company will have no liability: if shareholders could be liable for a company’s debts then neither stock exchanges nor pension funds would exist. Directors could theoretically have liability for some or all of the shortfall, but in practice this is extremely unlikely. However, the likelihood of a partner being held liable for the shortfall in a partnership is 100%.
Directors can incur personal liability to creditors in certain circumstances if the company is insolvent, but such liability only arises in situations which go beyond negligence and into the realms of recklessness or crime. One of those circumstances is fraud, which speaks for itself. The other is wrongful trading, which occurs when a company continues to trade when it has “no reasonable prospect” (which wording sets quite a high bar) of avoiding going into insolvent liquidation or insolvent administration. An example of this in a normal trading company might be continuing to take customer orders and customer money when there is no realistic chance of the orders being met because the company is insolvent. Again, the liability which a director would have in such circumstances is no greater than a partner of a partnership would have in identical circumstances, whilst the hurdles which a creditor would have to overcome to enforce a claim against the director would be considerably higher than in enforcing them against a partner.
By moving trading activity from a partnership of which you are a partner to a company of which you are a director, you are invariably reducing your risk of personal liability very significantly.
Breach of fiduciary duties
So what other liabilities might a company director be opening themselves up to? In law, there are seven fiduciary duties set out in statute:
- to act within powers;
- to promote the success of the company;
- to exercise independent judgment;
- to exercise reasonable care, skill and diligence;
- to avoid conflicts of interest;
- not to accept benefits from third parties; and
- to declare any interest in a proposed transaction or arrangement with the company.
To a director who is familiar with these duties in the context of a partnership, these hardly seem onerous and, most significantly, the duties are owed to the company itself, rather than to third parties. It would be the company itself, either through a majority of directors or through minority shareholder action, that would have to sue a director for breach of fiduciary duties. Whilst this is conceivable in a large, listed company, in a small private company which is run and owned by the same people, and in which decisions are made by majority, it is hard to conceive of a situation whereby it might occur.
When it comes to clinical negligence, a company can be liable for the actions of a director, but it is rare for a director to be capable of being held liable for the actions of the company unless the director has themselves done something negligent, in which case the liability arises by virtue of the director’s action rather than by virtue of them being a director. Corporate manslaughter is an exception to this principle, but for a director to be liable in respect of corporate manslaughter it would have to be established that the way in which the activities of the company were managed or organised caused someone’s death and amounted to a gross breach of a relevant duty of care owed to that person. Again, it is hard, if not impossible, to conceive of circumstances where a director of a company had more liability in identical circumstances than a partner of a partnership.
What steps can be taken to reduce the risk to directors?
A question we are often asked related to directors’ liability concerns directors’ and officers’ liability insurance (D&O Insurance). D&O Insurance first started to feature in the public awareness as a result of the various government-commissioned reports into corporate governance in the 1990s: the Cadbury Report, the Greenbury Report and the Hempel Report. These reports led to an increase in the number of non-executive directors being appointed by listed companies. As these non-executive directors usually had very limited supervisory roles, usually concerned with audit and director remuneration, but could potentially incur the same personal liability as ‘ordinary’ directors, they invariably insisted on companies taking out D&O Insurance on their behalf before they would accept appointments – simply by virtue of the enormous numbers involved in such companies. D&O Insurance in respect of a small private company, such as a PCN company or an incorporated GP practice, would be unusual as the directors invariably have a much greater understanding of the operations of a much simpler business. If however you are concerned about this residual directors liability you should speak with a specialist insurance broker about the risks more generally in primary care.
Conclusion
In summary, when you move trading activity from a partnership to a company you invariably end up reducing your potential personal liability. It is no surprise that well over three quarters of all businesses in the UK trade as limited companies, and the majority of the remainder trade as very small sole practitioners. Partnerships have their advantages, but reducing personal liability is not one of them.
If you have any questions on the topics covered in this blog or on any other legal issues, please contact Nils Christiansen on 01483 511555 or email enquiries@drsolicitors.com.
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Podcast: Nils Christiansen on the minefield of PCN incorporation
With workload becoming ever more complex and demand continuing to grow for general practice services, many PCNs are looking at incorporation as a solution to running a safe and sustainable structure going forwards. Produced by Ockham Healthcare, Nils Christiansen presents a short podcast offering practical advice on safeguarding and streamlining the PCN as a business entity.
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GP Federations and PCNs: Can they co-exist?
Some GP Federations and PCNs are working well together, some are in conflict, and others have nothing to do with each other. Why are there such marked differences around the country?
PCNs and GP Federations were both established as ways for Primary Care to work at scale. GP Federations were often ‘encouraged’ to form by dangling the carrot of CCG wide contracts – usually APMS contracts for extended access. The payment for delivering those contracts flows directly to the GP Federation, which has its own management structure and P&L. This has encouraged some practices to see Federations as arms-length service providers that have little or no relevance to the day to day running of their practice, regardless of how well or poorly the Federation delivers its service contracts.
PCNs, by contrast, do not generally have service contracts of their own and are normally much smaller than a CCG. They derive their funding from the PCN DES which is simply an extension of the GMS/PMS/APMS contracts of each of the core member practices – albeit held in a shared bank account. As a result, surpluses and deficits in the PCN translate directly into profits and losses in member practices, and a poorly run PCN would have a direct financial and regulatory impact on its members.
Whilst they have the same underlying member practices, most GP federations are also much larger than PCNs. PCNs comprise member practices with total list sizes of about 50,000, whilst the average GP Federation comprises members with total list sizes in excess of 200,000.
Prime contractor vs sub-contractor
Because Federations had their own service contracts from the outset, they needed to be independent companies. These companies were set up with their own management which was responsible for deciding how to deliver the contracted services. Whilst many Federations decide to deliver their contracts in collaboration with their member practices, it is clear that the practices are sub-contractors providing staff and resources to the Federation.
By contrast, because PCNs receive their funding directly from NHS England, if they choose to work with a Federation it is the Federation which becomes the sub-contractor providing staff and services to the PCN. The difference is crucial because the prime contractor always chooses the sub-contractor and ‘sets the rules’, not vice versa.
Culture
As control of contracts moves from federations to PCNs, the role of culture becomes important. A prime contractor’s job is to ‘manage’ the sub-contractor as the prime contractor is ultimately responsible for delivery. As a result, Federations often needed to create a culture of ‘managing’ member practices. For PCN DES delivery it is the practices themselves who are the prime contractors, so they need to manage the sub-contractor GP Federation and not vice versa. This can get even more complicated when the Federation continues to have its own contracts which it subcontracts to GP practices, as the management and control then needs to go both ways. In our experience this role reversal can create a major cultural challenge as the practices and the Federation get used to their new roles and responsibilities.
A Shared Service Centre Mindset
At root, the PCN DES encourages member practices to share resources. This is not uncommon in business and is often called a ‘shared service centre’. Member practices obviously share ARRS resources, but there is no particular reason why they should not share other functions as well. This is where a Federation can really add value to PCNs. Shared service centres benefit from scale economies, so they often work better if they are larger – which Federations are. Federations can therefore develop to offer a menu of services to PCNs, and can perhaps provide these services more cost effectively than PCNs themselves because of the scale economies. This does however require that the Federation mindset changes from one of controlling work allocation to being a provider of high quality, well managed services to PCN member practices. This change in mindset will often also require a change in the governance model and the ownership model of the Federation to more closely align it to the PCNs it serves.
Conclusion
With CCGs disappearing into ICSs and extended access funding moving to PCNs, the original purpose of Federations is fast disappearing. Some Federations have other contracts providing them with an income, but these may also be under threat as ICSs consider commissioning at an even greater scale than CCGs. This leaves many Federations with a choice of either ‘scaling up’ to ICS size and remaining as a prime contractor, or ‘scaling down’ and becoming a sub-contractor to PCNs. It may be possible for a Federation to do both, but it should then recognise that there is a fundamental difference between these two roles which may be difficult to manage.
Many Federations are recognizing that this is a strategic decision they are going to have to make very soon. It is perfectly possible for PCNs and Federations to happily co-exist, but to do so many Federations are finding that they have to change their operating model.
We have worked with many PCNs and Federations to improve their joint working arrangements, and have deep experience of what works, and what does not. For more information please contact Nils Christiansen on 01483 511555 or email n.christiansen@drsolicitors.com
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ARRS Chaos – How to avoid some of the ARRS employment traps
One of the underlying issues with ARRS resources is the challenge in deploying staff across multiple member practices. This sharing of resources cuts across the usual employment relationship where an employee works for a single employer, and across most employment laws and regulations which have a single employer arrangement in mind.
Because a PCN is a contractual construct (as opposed to a legal entity), it cannot employ staff in its own name. PCNs are therefore forced to come up with structuring and contractual workarounds to achieve the desired result.
These workarounds include:
- appointing a ‘lead practice’ to act as the employer;
- entering into a ‘joint employer’ arrangement;
- sub-contracting with a GP Federation or third party;
- incorporating the PCN.
The desired outcome is the same, namely a PCN resource who works across all the member practices, and where all the practices have the same or similar rights and obligations towards that member of staff.
Where to start? Identify the key responsibilities
The easiest way to achieve the desired outcome is to break down the various responsibilities associated with engaging staff, and agree which entity will perform it and how. Key responsibilities include:
- Recruitment responsibility
- Day to day management, eg scheduling & work allocation
- HR management, eg disciplinary and grievance procedures, annual review, agreeing pay and pay rises.
- Organising cover in the event of absence and deciding who will pay for it (ARRS does not currently reimburse this cost).
- Planning and paying for dismissal or redundancy
- Managing plans to restructure the PCN and deciding what should happen to the ARRS staff members
In a traditional employer/employee scenario, all of these responsibilities would sit with a single employer. By contrast, in a PCN the responsibilities can be shared amongst core network practices, or transferred, in whole or in part, to another organisation entirely. The answer will depend upon your structuring choices and could be any one of (1) to (4) above, but what is clear is that not all of the responsibilities need to reside in one place, indeed there may be differing optimal solutions for each different resource.
Case Studies
In our previous blog we gave some examples of resourcing problems that PCNs are encountering, and will now explore those further:
Q Who will cover my Clinical Pharmacist when they are on short term leave?
A Firstly, consider whether cover will be required for the duration of the staff member’s absence. This needs to be agreed between the practices, but full cover is more likely in the case of a clinical resource than a non-clinical one.
If cover is required, then who will provide and pay for the cover is a contractual question. Broadly, unless you’ve agreed amongst yourselves or with your supplier (in the event you’ve sub-contracted) that there will be cover, then the default position is there will be no cover.
If the employer is a lead practice, the answer should lie in your PCN Agreement or more likely, a Workforce Sharing Agreement.
If the employer is a GP Federation, Trust or similar, the answer should lie in the PCN sub-contract with that party.
Q My Occupational Therapist is under-performing and I want to move to an alternative provider – can I do so?
A This scenario clearly assumes that a third party is providing the occupational therapist. Subject to any termination provisions in the contract, you would normally be free to move to another supplier of services. However, if the occupational therapist is working exclusively for your PCN, then the switch may be a service provision change to which the TUPE Regulations will apply. The effect of this is that even if you were to move to another supplier, the under-performing occupational therapist is likely to automatically transfer to the new supplier and you could therefore still have the same person turning up for work.
In reality, this is likely to be resolved by discussion with the supplier and you will have to go through the contract management processes with that supplier. This will only be possible if you have a well drafted contract setting out the expected service levels and you are able to explain in what ways those service levels are not being met.
Q Who picks up liability in a redundancy situation?
A The answer to this is always the employer in the first instance. The employer may be able to recover the costs from the member practices but only if there is an agreement in place stipulating that they can do so. This would either be the PCN Agreement, a Workforce Sharing Agreement or a sub-contract depending on the structure.
Inevitably, this is something which is likely to be hotly contested so it is important that these documents are well drafted so that all parties are confident that they rely on them. Also bear in mind that any contractual promise is only as good as the party who has given it, so you will want to make sure you understand the financial standing of your contracting parties.
Conclusion
In summary, the use of ARRS resources is inherently complicated and goes against the normal way of employing staff. Our recommendation is that you analyse the key responsibilities and figure out which legal entity is going to be responsible for each of those and then critically, make sure that this is written into the relevant agreements. Those agreements could be a PCN Agreement, a Workforce Sharing Agreement or a sub-contract. The key is that these documents are well drafted and properly negotiated. Remember that these are all legally binding documents and are the only mechanism to achieve any of the above outcomes.
Once you’ve determined this, then the relevant employer must ensure that each contract of employment with a PCN resource reflects the unique arrangements have been made. It is unlikely that a standard ‘off the shelf’ employment contract will do this, so this will usually need some careful drafting.
As can be seen, working with an ARRS resources can be complicated and unfortunately, problems are likely to emerge. As always, the risks can be minimised by taking appropriate advice in advance.
If you would like to speak to an expert solicitor who can help you with your PCN Agreement, Workforce Sharing Agreement, employment contracts or third party sub-contracts, then please call Daphne Robertson on 01483 511555 or email d.robertson@drsolicitors.com
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PCNs – the new phase of Managing Growth
PCNs have now successfully established themselves, and are beginning to find their place in the NHS. They have usually engaged a number of ARRS resources, are normally delivering the COVID vaccines, and have, in general, achieved more in the last 2 years than many people believed possible. With 99% of practices now members of a PCN, many of the key organisations in healthcare are talking about how PCNs can deliver for them and their patients. In many ways it is hard to describe PCNs as anything other than a great success.
Take a step back for a moment to June 2019, when PCNs were set up. The focus was on getting the whole of England moved simultaneously into PCNs so it was done quickly, informally and with little consideration to structure and future-proofing. During this ‘Establishment’ phase, this informality was a strength and not a problem: risks were generally manageable and the money involved was not huge. However as PCNs have matured, the problems with this informality are becoming clear as PCNs are finding it challenging to scale-up. To continue to grow successfully PCNs are having to find new, more formal ways of working.
In our opinion PCNs now need to move on from the ‘Establishment’ phase, and into a new phase of ‘Managing Growth’
What are the key issues to be resolved in the phase of Managing Growth?
1. The models of engaging the ARRS resources need to be formalised properly. Some of the scenarios that we are seeing frequently, include:
- who will cover my Clinical Pharmacist when she’s on maternity leave?
- my Occupational Therapist is under-performing and I want to move to an alternative provider – can I do so?
- our Health & Wellbeing Coach has been shielding. We need him back in the Practice but the Federation (who provide him) says they will continue to support him to work from home. What are my options?
- we have a PCN Social Prescriber from a third party provider. She doesn’t fit in and is rude to patients, who have complained, so we’ve told the third party provider that we don’t want her any more. She has now alleged that we are discriminating against her – something we strongly refute. The third party provider also says we’ve got to pay for her until they find her somewhere else to work.
- who picks up liability in a redundancy situation?
Whilst you’re never going to stop these tricky employment scenarios occurring, the questions they are raising do not always have clear answers due to contractual uncertainty. The ideal position would have been that the questions were thought through beforehand and the answers built into contracts, but unfortunately most PCNs simply didn’t have the time to give this enough thought, and they now need to do so if they want to move into the Managing Growth phase with confidence. We will explore this further in a separate blog.
2. PCNs are going to have to develop management structures characteristic of a well-run business. For many PCNs, this is likely to lead to a decision to form some form of incorporated entity which will be run as a captive shared service centre. Such a company will act under instruction from the PCN, but will have separate legal form and therefore be able to better manage and contain risks. This could be a modified Federation or a separately incorporated PCN Company. If you missed it, you might be interested to view our V-blog on the subject of incorporating your PCN.
3. PCNs and Federations need to figure out how to work together. Federations have typically been around longer and already have contracts and resources in their name. Some have been more successful than others but they are all GP-led, local businesses. PCNs have all of the ARRS money to spend and are seen as the point of integration for future services. There is a risk that the two entities compete with each other, when usually the best answer will be reached through collaboration rather than competition.
How Federations and PCNs work together will undoubtedly differ on a case by case basis and we have seen a variety of different models emerge, but what is clear is that if PCNs and Federations are allowed to compete, neither is likely to be as successful as they would be if they collaborated.
We will discuss the different models for Federations and PCNs to work together in a separate blog.
Next Steps
In conclusion, PCNs have become victims of their own success. Unless they quickly move into the Managing Growth phase and update their management structures and contracts to reflect working at scale, they are likely to find that problems begin to emerge. The list of potential issues is long: is there sufficient financial control around the PCN funds?; are there hidden tax liabilities such as VAT?; is the staffing model clear and documented?; the list goes on.
In our view, the Managing Growth phase means looking at PCNs with a commercial mindset, and ensuring that they are managed and operated as efficiently as a well-run practice. Care must be taken to ensure that PCNs do not develop a ‘mind of their own’, but there is no reason why this should happen if proper governance structures are put in place.
We will be covering more on this subject in future blogs, but in the meantime, if you have any queries relating to your PCN, please get in touch with Nils Christiansen on 01483 511555, email n.christiansen@drsolicitors.com
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PCN Incorporation: The Why and the How
PCNs were set up at great speed last year. They were usually established as a cost-sharing arrangement between practices that had signed the PCN DES. This has worked well but problems are beginning to emerge as PCNs gain scale. This video blog examines the various emerging issues, and explains how incorporating a PCN can address many of them. It also explains the steps you will need to take to incorporate your PCN.
There are currently very few incorporated PCNs, but many of our PCN clients see this as a logical next step in their development. Watch this vBlog to understand why.
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Is it time to incorporate your PCN?
Primary Care Networks (PCNs) are now a year old. The first year was a time of building foundations, but the 98% sign up to the 2020/21 DES proves that PCNs have become an important part of the primary care landscape in England. We can now expect to see a rapid build up in PCN resources, as PCNs take up increasing responsibility for local healthcare issues.
What’s the problem with existing models?
While PCNs were operating at a small scale it made sense to keep them simple. Understandably, many PCNs decided to employ the additional staff in one of the member practices, and just recharge the cost to the PCN bank account. So long as you have robust, legally enforceable, PCN agreements in place, this approach works well.
However as PCNs grow the amount of money and risk involved also increases. Many PCNs will have about 10 additional resources in 12 months time, and within the next 4 years the average PCN will be spending ca. £1m a year. We are already seeing PCNs being offered additional new contracts to address local healthcare issues.
This growth creates problems:
- PCN staff are often employed in different member practices with different terms and conditions.
- VAT questions arise as practices find they are exceeding the VAT registration threshold, and
- Contracts for new streams of funding have to be entered into by the existing practice entities, which are usually unlimited liability partnerships, because there is no ‘PCN Entity’.
Since the PCN is just a contractual relationship, it is relies on trust between the member practices. Trust can rapidly disappear when large sums of money are involved, so careful attention to legal documents is required.
Why incorporate?
If done properly, incorporation can solve many of these issues. A company can be jointly owned by PCN members so that they all have an ownership stake. As it has ‘legal personality’ the company can enter into contracts for additional non-DES funding streams. 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 largely contained within the limited company, and the problem of irrecoverable VAT is avoided by setting up a ‘VAT Cost Sharing Group’ to include the core network practices and the company.
So what are the challenges?
DR Solicitors identified incorporation as a likely future for PCNs over a year ago, but advised that in the early stages the costs might well outweigh the benefits. Establishing and running a company is a more complex and expensive option, and is also more difficult to unwind if PCNs had not developed as expected. Companies also encounter issues with the NHS pension, the CQC, and potentially with the agency worker regulations. They are taxed differently to partnerships, and require careful structuring if they are to benefit from the VAT Cost Sharing rules. In short, they are not something to be embarked on lightly, or without proper advice.
Should our PCN Incorporate?
There is no simple answer to this question as incorporation will be right for some PCNs, but not for others. In year one there were very few PCNs who wanted to go down this route, because most were focused on starting-up and the risks were anyway quite low.
As PCNs are maturing, the incorporation model looks increasingly attractive to those PCNs that are employing staff themselves or who want to secure additional PCN-level income streams. Incorporation is less attractive for those PCNs working closely with a GP Federation or similar organisation. Many PCNs will undoubtedly decide to stay with their current cost-sharing model for the foreseeable future since there is no legal requirement or burning reason to change it.
What are others doing?
A very small number of PCNs incorporated during 2019/20, but we have seen a marked increase in interest in PCN incorporation recently. This is what we anticipated a year ago, and we would now expect that several hundred more PCNs will decide to incorporate over the next 12 to 18 months.
The key to success will be getting expert legal and accountancy advice. Incorporating a PCN is complex and there are many traps for the unwary so you will want to be confident you can rely on any advice you receive.
For assistance with incorporation or indeed any other PCN related matters, please contact Nils Christiansen or Daphne Robertson on 01483 511555 info@drsolicitors.com