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
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Is your PCN Agreement fit for the new GP Contract
The new GP Contract for 2020/21 was recently published. Unsurprisingly, it contained a big emphasis on Primary Care Networks (‘PCN’s). It is becoming increasingly clear that PCNs are here to stay, and a significant share of future monies to General Practice will be routed through PCNs. There are already more additional PCN roles which have been set out in the new contract, and it is a reasonable expectation that by 2025 an average PCN will be responsible for managing costs of around £1m. With so much money at stake, good governance will be critical.
The role of the PCN Agreement
The PCN Agreement is best thought of as the ‘constitution’ of the PCN and it is thus central to good governance. Its principal role is to describe the purpose and membership of the PCN, how decisions will be made, what key control processes will be in place, how disputes will be resolved, and how members can join and leave. More operational matters which are not permanent and can change frequently (such as role descriptions and detailed costs) are best dealt with in a more flexible way as part of ongoing PCN management.
Characteristics of a good PCN Agreement
A well drafted PCN will have a number of key characteristics, and it is worth checking to see how many of these yours has:
1. It should be unambiguous. The PCN Agreement is a legally enforceable contract and you must be confident that you will be able to rely on it in court. Vague statements like “VAT requirements are still to be clarified” are not terms that you would want to see in a constitution or indeed any legal document. Any member practice incurreing PCN costs or liabilities will want to be sure that these can be identified and recovered – through court action if necessary.
2. It should set principles, but not all the detailed rules. For example, one principle is likely to be that all PCN related costs are shared costs, probably shared by list size. The major cost categories will be defined, but the specific costs associated with each role (like an employee’s salary and associated overhead) plus any changes to the default allocation methodology will be agreed on a case by case basis as these will differ for each role. This means of course that it is also critical to document the ongoing management decisions of the PCN
3. It should be easy to read and not full of legal jargon. PCN Members and managers need to be able to understand the rules that have been set, without having to call a solicitor every time they have a question about them.
4. It should be robust but flexible. It needs to ensure that some things are very hard to change, but other things are much easier. This combination of robustness and flexibility is one of the hardest things to achieve, and many PCNs will have erred too much on the side of caution by requiring that all decisions are unanimous. We are of the view that there are normally only a couple of things which are so fundamental that they would require unanimity.
5. It should incentivise members to participate. This is best done by making it hard to veto decisions, but permitting individual practices to opt out of particular services if they so wish.
6. It must deal with 2 levels of governance: How the Core Network Practices deal with the DES monies, and; how the wider membership deliver more integrated services to the patient population. We have seen too many PCN agreements which only deal with the first of these.
If you are in any doubt about the quality or fitness of your PCN Agreement, we would be happy to provide you with a free, no obligation assessment of it. If it needs improving we can either recommend changes, or provide you with a new, comprehensive and bespoke PCN Agreement for a very competitive fixed price.
For a free initial chat about this or any other legal concerns you might have, please contact Nils Christiansen n.christiansen@drsolicitors.com or Daphne Robertson d.robertson@drsolicitors.com or call us on 01483 511555.
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How should PCNs share their employees and workforce effectively?
Summer 2019 – memorable for heated political debate, spectacular cricket … and the establishment of Primary Care Networks!
With PCN Agreements concluded, members must now turn their attention to the growth of the network workforce. Over the next five years it is estimated that some 22 000 additional staff will become network employees. This year, each network will recruit a clinical pharmacist and social prescriber, shortly followed by a first contact physiotherapist and a physician associate next year.
First step: structure
Unlike the procedure for standard recruitment by individual practices, the introduction of the new network workforce necessitates network members to first decide how to employ network staff.
The BMA have identified five potential operating models for PCNs and each model has different consequences for the structure of the workforce within the network.
At DR Solicitors, we notice a marked preference amongst our clients for the lead provider and the federation model, but it is important to realise that in the same way as a practice can hire staff as partners, employees or locums, a PCN can hire different resources using different models. The resourcing model is therefore a critical factor to consider every time a resourcing decision is made.
Factors to consider when deciding on structure include control, tax, cost, liability operating model and resource availability. There is no one size fits all answer, and what works best may well change over time. The key is therefore adopting a model which is flexible and suits your local circumstances.
Second step: Document the sharing agreement
When agreement has been reached as to the employment structure, the sharing arrangement must be documented. In cases where the individual is employed by a PCN member acting as a lead provider, a Workforce Sharing Agreement (‘WSA’) will be required.
This Agreement sets out employer and employee responsibilities and importantly, makes clear cost sharing arrangements for the shared employee. The agreed framework for managing the shared employee should be set out in detail, including procedures to deal with absence, confidentiality, recruitment, termination, changes to Ts&Cs and more.
The WSA cannot be generic as specific details will depend on the resource being shared. For example, it should state whether the particular shared resource will need to be back-filled or not.
If the new resource is being provided from a third party like a Federation or Trust, a Sub- Contract will be a more appropriate document. This is because the primary responsibility lies with the Core Network Practices through their DES, and they will want to ensure that the same obligations are passed through to the Federation or Trust. This requires a different set of decisions. For example, in a WSA the main purpose will be to ensure that all costs and liabilities are shared, whereas in a sub-contract practices will need to decide whether to pass the risk of cost over-runs and employment claims onto the sub-contractor. Just because the PCN receives a certain amount of funding for a particular role does not mean that this is what they have to contract to spend.
Do I need any other agreements, in addition to the WSA or Sub-Contract?
The network employee will not be party to the WSA or Sub-Contract and therefore it will be necessary to have a contract of employment between the employer and the individual. There are no mandatory contractual terms for staff employed under the PCN DES, but there are nonetheless important considerations, such as the levels of reimbursement available and the newly identified responsibilities for each role.
Mobility for the employee within the network is essential and we recommend that a Licence to Attend is signed, permitting the employee to carry out work at PCN locations other than the premises of their direct employer.
Recommendations
Remember that a PCN is a wholly contractual arrangement. Since PCNs do not exist as a legal entity, there is no body of law to fall back on and this means that all arrangements within a PCN must be documented particularly carefully. Workforce sharing arrangements are no exception to this.
If one or more of the Core Network Practices are going to employ the shared resources we recommend that a WSA is concluded before terms and conditions of employment are agreed with each new network employee. Until the WSA has been agreed, you risk that some or all of the risks and costs of employment will remain with the employing practice.
If you have decided to sub-contract the resources to a different entity like a Trust or Federation, we recommend that you agree a Sub-Contract before any of the new resources start work in the PCN. This is the time when you will have most negotiating power, and will ensure that all parties are clear about who is picking up which costs and risks. An appropriate sub-contract also happens to be one of several rules regarding sub-contracting which are set out in your GMS Contract.
The area is very complex so as ever it is a good idea to take specialist advice. At DR Solicitors we have supported well over 100 PCNs so are experts in this field. For advice on Workforce Sharing Agreements, Sub-Contracts or PCNs generally, contact Karen Black or Daphne Robertson on 01483 511555 info@drsolicitors.com.
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How to complete the mandatory PCN Agreement
The national template Primary Care Network Agreement has just been published by NHS England. As readers should be aware, the new Network Contract DES requires participating practices to form their PCN and submit various information by 15 May 2019. A completed ‘initial’ Network Agreement is the most substantial part of this submission and use of the national template is mandatory. The Network Agreement must then be finalised and signed by latest 30 June 2019.
What is needed by 15 May?
The initial submission does not require the Network Agreement to be in final form. All that is required by this date is:
- Names of the member GP practices (in the front of the agreement)
- Details of the Network Area, the Clinical Director and the nominated payee (in schedule 1 of the agreement)
This is the information which most practices will currently be discussing with their LMC and CCG. From a legal perspective the most important decision at this stage is the nominated payee, as this will determine who receives the DES monies in the first instance and this has significant tax, pension and control implications.
What is needed by 30 June?
The Network Agreement must be negotiated, agreed and signed by all PCN participants by 30 June. In addition, all PCN member practices must ensure they have in place a data sharing agreement and, if appropriate, data processor agreements (both using the national template which should be published soon). Each PCN must confirm to the CCG that these documents are in place before the PCN will be considered established, so if the 30 June deadline is missed the PCN will not be able to start providing services and any payments due will be rebated.
What is in the PCN Agreement?
The PCN Agreement is a legally binding document. As such it is important that practices understand the rights and obligations which they are signing up to. It incorporates four elements:
- Mandatory fixed clauses. These cannot be changed other than by direction from NHS England.
- Mandatory extendable clauses. These clauses must apply, but can be supplemented with additional wording. Examples of this include the clauses relating to information sharing and confidentiality, and processes for joining and leaving the network.
- Replaceable clauses. These are suggested default clauses, but can be modified or replaced entirely at the discretion of the PCN. Examples of this include the clauses on variation and dispute resolution.
- Locally defined clauses. PCNs can add their own clauses to the Agreement, so long as these do not conflict with other parts of the document. Examples of additional clauses which PCNs might wish to consider include indemnities and limitations of liability, since the basic template agreement does not limit liability and many practices will be hesitant to sign without this.
Do PCNs need help to complete the Agreement?
PCN member practices could in theory simply fill in the information needed for 15 May, and sign the template PCN Agreement in un-amended form plus the data sharing agreement once this becomes available. This may work for a very simple PCN, but is probably not advisable for the majority of PCNs. Key information such as decision making and how revenue and costs are to be shared is missing, and the template Agreement cannot easily be varied once signed. The default position is that all changes must be agreed unanimously, so a single member could prevent all the others from making the changes they felt were needed once the PCN was operational.
The PCN Agreement is a legally binding document which will govern an increasing share of the services to be provided by General Practice. Given that the future development and direction of PCNs is still unclear, it would, as a minimum, be advisable to increase the flexibility of the variation provisions, specify the financial arrangements and extend or modify a number of the legal provisions in the template. It is hard to see how this can be done without involving specialist accountants and solicitors who understand the tax, pension and legal implications both on the PCN and on the underlying practices.
Conclusion and Next Steps
Time is short. A limited amount of information must be submitted by 15 May, and PCNs should think particularly carefully about the nominated payee (i.e. who the PCN monies are paid to) and take advice on this from a specialist accountant in the first instance.
The information required for 30 June is much more extensive. PCNs are unlikely to have the legal and accountancy expertise required to modify and extend the Agreement template, but most PCNs will want to make changes to the template before signing the legally binding document.
We strongly recommend that PCNs now engage ourselves, alongside specialist medical accountants, to assist with developing their PCN Agreements and to ensure that they are in the best position possible for the 30 June deadline.
For further information and assistance with your PCN Agreement, please contact Daphne Robertson, d.robertson@drsolicitors.com or Nils Christiansen n.christiansen@drsolicitors.com
News
Opportunities and Challenges of using limited companies for NHS primary care
Practices have, in principle, always been able to use a limited company as a business vehicle, but few have done so because it requires the consent of NHSE to migrate the core contract into the company. We’ve noticed a recent increase in the number of practices successfully persuading NHSE to provide consent, so we have set out in this blog some of the opportunities and challenges associated with running the practice through a limited company.
Why convert?
Most obviously, running the practice through a limited company limits your potential liability to the capital which you have invested in the company, plus any undistributed retained profits. This can be attractive to partners concerned about the unlimited liability in an ordinary partnership.
Because a limited company separates out ownership and management (shareholders and directors), senior staff can have a management role without needing to contribute any equity or take any ownership risk. Company directors do not need to be shareholders, so are free to manage the business without putting any personal capital at risk. Likewise, the shareholders can put in capital, but do not need to have any day to day involvement in the practice.
There can also be tax and pension advantages with limited companies. These depend on individual circumstances and advice should always be sought, but they include the ability to target a particular income number to manage your tax liabilities and ensure that you do not exceed the annual pensions allowance. Other tax reasons include the different tax structure for ltd companies and certain tax allowances which are only available to limited companies.
Differences between a company and a partnership
In a company, all staff including the directors are employees and therefore have employment rights. The partners in a partnership are self employed and have very limited employment law protection.
Companies have to make certain information publicly available, such as their accounts, the company constitution, the directors and people with a significant interest in the business; whereas in a partnership, everything is confidential.
Limited companies have no concept of capital accounts for each shareholder. As a consequence, there is no obvious way to ring-fence an individual’s capital or ensure that they are able to withdraw it upon leaving the practice. This needs to be thought about carefully from the outset if that is what you are seeking to do.
There is no automatic mechanism for expelling a shareholder from a company. In a partnership you can expel a partner, but you cannot normally take away a person’s shareholding.
Partnerships dissolve automatically on the retirement of any individual unless the partners agree otherwise, which is one of the main purposes of a partnership agreement. A limited company, by contrast, continues indefinitely until somebody decides to wind it up. This means that once a GMS/PMS contract and a surgery building are held by a limited company, they do not need to be varied as partners/shareholders come and go.
Conclusion
Now that NHSE are becoming more open to limited companies, we expect to see their use in primary care increase significantly. However, GPs should be aware that there are major differences between partnerships and companies, and they should take advice from specialist accountants, solicitors, and their bank and IFA before attempting to make the change.
For further information about the use of limited companies, please contact Daphne Robertson, d.robertson@drsolicitors.com or Nils Christiansen n.christiansen@drsolicitors.com
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Primary Care Networks: Legal Considerations
One of the big initiatives in the new contract is the Primary Care Network (PCN) DES. PCNs must be geographically contiguous and comprise practices with total list sizes of 30-50,000 patients. The DES will provide funding for additional resources at a network level, who will then be expected to work within the member practices. Initial funding will be for one clinical pharmacist and one social prescriber per network, and later funding streams are expected to support other types of resources such as physiotherapists, physician associates and more. The workforce and network will be led by a Clinical Director, chosen from within the GPs of each network.
What do practices need to do?
To become a network, practices will need to apply to the CCG by 15th May 2019. The application should include: names and list sizes of member practices; a map of the network area; the name of the clinical director; the name of the single provider who will receive the funds; and a signed Network Agreement.
The first and most urgent step is to identify and agree the network area. For some PCNs the area will be obvious and practices will already be working closely together. In other places agreeing an area will be more challenging, but it is clear that any practices which do not join a PCN will not benefit from any of the associated new funding, and indeed risk losing existing funding since the extended hours DES will also move to the PCN. Further guidance should be available shortly from NHS England, including a template Network Agreement.
Legal Entities
It seems likely that PCNs will become an important part of the primary care landscape, but with so little known about how they will develop, practices would be well advised to keep their structures as flexible as possible at this stage. As such, whilst it may make sense for some PCNs to establish a separate provider entity at some point, practices should probably look to use existing provider entities for now. There may however be particular reasons why this will not work for some PCNs, so if you are in any doubt you should take advice.
Legal Concerns
PCNs give rise to a number of particular concerns which will need to be considered by practices:
- Employment. The DES anticipates the employment of new resources who will work across the network. It is likely that whichever practice receives the funding will also employ the new resources, but consideration should be given in their employment contracts to the basis under which they will work in the other PCN member practices. There are a number of options, but it is important to think these through and document them properly to avoid tax and legal problems later.
- Governance. Over time, significant amounts of money will be flowing to the PCN. How will decisions be made between the PCN members, how will disputes be resolved, and how will liabilities be shared? Key questions such as these are unlikely to be in the template Network Agreement and will need to be documented separately.
- Pensions and Tax. Will income from the DES be pensionable, and how will it be taxed? The answer to this question will depend on both the legal entities involved in the PCN, and the contractual nature of the relationships. To avoid future problems PCNs would be well advised to discuss this at an early stage with professional advisers and properly document the various relationships.
Conclusion
PCNs are a significant new part of the primary care landscape and practices should be preparing now. They should familiarise themselves with the information on the DES available from NHS England and the BMA, organise into geographically coherent areas, and ensure that they register in time.
In parallel they should take specialist advice on the best way to organise the funding flows and the contractual relationships to minimise the risk of future tax, pension and legal problems arising.
If you have any questions about PCNs, please contact Nils Christiansen at n.christiansen@drsolicitors.com or call 01483 511555