Thinking of handing back your GMS/PMS contract?
Whether you’re in a GP partnership or a single hander running your own practice, there are likely to be times and situations that prompt you to re-evaluate your position. Maybe you find yourself facing challenging circumstances, such as a dispute, or financial pressures which are making the practice unprofitable. You may feel your individual risk is too great if you have an insufficient number of partners to share the burden, or you need to act now to avoid the ‘last man standing’ issue. It could also be that you’re planning to retire or simply just wish to make a change….
Whatever the catalyst may be, one option you might be considering is handing back your GMS or PMS contract. Traditionally, opting to go down this route was rare but it is now becoming far more common. However, it can have serious implications, so before making any decision it is important to understand what the consequences may be and also what the alternatives are.
What does it mean?
To hand back your GMS/PMS contract, you first need to give notice in writing to NHS England in accordance with the regulations. The GMS notice period is 6 months for a partnership and 3 months for a sole practitioner. The GMS contract will come to an end on the last day of the month in which the notice period expires. The required PMS notice period is a minimum of 6 months regardless of the type of contractor.
By terminating your primary care contract your patient list will return to NHS England and your obligations to provide patient care will cease. You haven’t, however, closed your business. You have therefore stopped your income stream (including any rent reimbursement), but your expenses will continue to accrue until you finally close the business or find an alternative source of income.
The cost of closing a business can be significant and includes things like staff redundancies and meeting any lease or mortgage obligations. Most leases won’t allow you to break a contract early, even if your circumstances have changed, so your rent and any service charges may continue. If you have a mortgage, you may find you become liable for an early redemption penalty, which could run into hundreds of thousands of pounds. There are also likely to be a number of administrative and contractual relations which need terminating, some of which could give rise to further unexpected liabilities.
So it is important not to look upon handing back your GMS/PMS contract as a ‘soft’ option or stand alone solution; taking this route needs to be a very well planned and thought-through process, if you are to manage the many financial and legal implications.
What are the alternatives?
- For a single hander, an alternative route to consider would be to take on a new partner, or multiple partners, who would be able to take over the practice, allowing you to step down.
- For a partnership, a merger with another GP practice could be a way to open up new opportunities and other options.
- You could also look for another healthcare provider who may be willing to take over your contract, such as a GP federation, a local hospital trust or a private provider.
- Don’t forget that your local commissioner (CCG or NHS England) can work with you to help find an acceptable solution, potentially through financial assistance or other support mechanisms, since receiving the patient list back becomes an expensive problem for them to solve.
Conclusion
Handing back your contract can be the right answer in some circumstances, but it is an option which should never be entered into lightly. Make sure you have taken the right accounting and legal advice and are confident you fully understand the ramifications before you make your final decision.
For more information about handing back your GMS/PMS contract, mergers, retiring from practice, or for any other enquiries, then please contact Daphne Robertson on 01483 511555 or email d.robertson@drsolicitors.com
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When is a GP practice merger not a merger?
A GP practice may consider undergoing a ‘merger’ for a variety of different reasons. One common trigger is that a single-handed GP is looking to retire. Alternatively, two practices may be looking to join forces to save costs, share resources and provide new services. Historically, all such transactions have been referred to as ‘practice mergers’.
However, if the two parties involved have no intention of being in business with each other for any longer than is necessary to transfer the GP practice to new ownership, then the transaction is really more akin to a takeover or acquisition than a merger.
NHS England (NHSE) recently published policy guidance on such transactions, which makes a distinction between a ‘merger’ and a so called ‘partnership change’. This has become an important issue for practices to be aware of since transactions which are in substance acquisitions are treated differently from those which are true mergers. NHSE will normally need to be involved in all ‘practice mergers’ at some point and if you start off down the wrong track it can be difficult and expensive to unwind things.
The difference between a ‘merger’ and a ‘partnership change’
One key difference between a ‘merger’ and a ‘partnership change’ is the interests of the parties involved.
If the substance of the transaction is an acquisition, such as our earlier example of a retiring GP, they will want to offload as many of their liabilities as possible – ideally all of them – while minimising any exposure to future risk. They’ll also be looking to maximise the value of their assets before they are transferred and will have no interest whatsoever in the acquiring business.
By contrast, in a merger, both parties will have a continuing interest in the other’s business, and will want to work successfully together in partnership. They will want to understand the risks and liabilities associated with each practice and important questions will need to be addressed, such as who will be liable if an issue emerges with one of the legacy businesses. Would it be the future partnership? Or one, or all, of the partners in the legacy practice?
Why is this important?
Historically, NHSE was content to ignore the differences between a merger and an acquisition and the details of how each transaction was to be structured was largely left up to the parties. NHSE largely confined itself to enquiring whether or not the GMS/PMS contracts were to be merged. However, in a paper published in January 2016, different processes were set out depending on whether the transactions was a ‘merger’, a ‘partnership change’ as well as whether the contracts were to be merged.
For GP practices, most of whom tend to refer to all such transactions as mergers and often head up their business plans as such, this can lead to problems. NHSE can insist on things happening that the parties may not want, such as requiring all partners go on each other’s contracts – not something that will be intended in the case of a retirement.
Seeking the right advice
NHS England will often ask practices to set out their merger plans in a business case. This is a key time to get advice to ensure the plans adopt the right language and align to the desired process.
The practices are also well advised to agree a ‘Heads of Terms’ at an early stage in their merger talks. This sets out the substance of the deal, provides an initial timeline, identifies the known key issues, identifies the correct NHSE processes, and ensures that everyone is aligned in their expectations before spending too much time and money.
Practices then need to consider other matters such as whether the staff need to be transferred under Transfer of Undertakings (TUPE), what changes are needed to CQC registrations, the implications for premises funding and more. Whether they are called ‘mergers’ or ‘partnership changes’ such transactions are complicated and are best undertaken with expert legal assistance.
For more information about mergers or partnership changes, or for any other enquiries, then please contact Daphne Robertson on 01483 511555 or email d.robertson@drsolicitors.com
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The dangers of having an out of date partnership deed
The pace of change in primary care has accelerated over the last few years and with so much going on it can be easy to forget to check you have the basics covered.
The Partnership is at the heart of most GP practices, and having a partnership deed that is up to date, valid and fit for purpose is vital if the interests of all partners are to be protected. Yet often a partnership deed may be forgotten, or only thought of, at times of major change or when a dispute arises.
Whilst most GP partnerships will be aware that having no deed at all is extremely risky, failing to keep it updated can also have serious implications.
Further reading: 4 legal issues to consider if one of your GP Partners “Burns Out.”
There are many reasons a deed may go out of date, or even be invalidated. So while you may feel you have everything already covered, if you haven’t looked over your deed recently then it’s probably time you did.
Some of the key issues you need to be aware of are:
1) A new partner has joined
While the retirement/removal of a partner won’t invalidate your current deed, the addition of a new partner does. Once your deed is invalid you are regarded as operating as a ‘partnership at will’. This is about the worst situation you can find yourselves in because it means your service contract and the entire practice is immediately at risk.
2) New income streams
An out of date deed will lack clarity, or won’t even deal with, the distribution of new income streams affecting a modern practice. How partners share any profits and losses is a frequent cause of disagreement, potentially resulting in a very expensive partnership dispute further down the line.
3) The sharing of risk
If your deed lacks clarity about the sharing of any ‘risks’ then it’s time for an upgrade. For example, what will happen if the CQC takes action against the Registered Manager? Does your CQC Manager pick up the liability, or will it be shared in some way by the partnership?
4) Asset valuation
We have seen an increase in the number of disputes arising out of the valuation of non-property assets owned by the practice. Examples include pharmacy shares, GP Federation shares, and even legacies. When a partner leaves, should they be bought out of their share of these assets, and to what extent is their value separable from the partnership? Your partnership deed needs to be clear about what happens in this event.
5) Lack of detail over property ownership
An out of date deed may not deal adequately with issues of surgery occupancy, the rights of the property owning partners, or how NHS Premises Funding and property related costs will be shared. This can be just as much a problem for leasehold as it is for freehold surgeries. Clarity is needed to ensure both owning and non-owning partners are appropriately protected and rewarded.
Futher reading: Beware the ‘Last Man Standing’ issue in GP Practices
To help you assess if your partnership deed is in need of an upgrade, we’ve prepared a checklist for you of some of the key issues that an up to date deed should cover. Take a look and if your deed doesn’t cover these points then it’s time to act and seek appropriate legal advice.
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Burnout: 4 legal issues to consider if one of your GP Partners “Burns Out”
Partner burnout is a growing problem for GPs – up to 50 percent are at high risk due to stress, high demands and funding cuts.
If one of your partners is suffering from stress, careful consideration should be given to these four key issues:
- Disability discrimination;
- Professional conduct, including patient safety;
- Partnership obligations as defined in the partnership agreement; and
- Fulfilling one’s obligations under the core medical services contract.
1. Disability discrimination
If stress results in a partner being unable to carry out their work properly on a long term basis, an Employment Tribunal may decide that the partner is suffering from a disability within the meaning of the Equality Act 2010.
The Equality Act says that dismissing someone or subjecting them to some other detriment because they have a disability, or otherwise failing to make reasonable adjustments to allow that person to remain engaged, gives rise to unlimited liability for disability discrimination.
GPs are usually aware that the Equality Act protects partners as well as employees. They can then bring or threaten disability discrimination claims where they feel that their colleagues have forced their retirement because of stress related illness or are trying to engineer their removal for this reason.
As set out below, appropriate support should be provided to any partner who is suffering from stress. This will prevent their condition becoming a disability and/or limit liability for discrimination, should it become necessary to terminate their engagement.
2. Patient safety
If at any time GPs have concerns that a colleague’s condition affects patient safety, they are obliged to act in accordance with their obligations to safeguard patient and the GMC guidance on Good Medical Practice. This states that you must ask for advice from a colleague (e.g another partner or GP at the LMC), your defence body or the GMC. If you are still concerned you must report the matter in line with GMC guidance.
All practices should have a properly drafted whistleblowing policy to ensure that guidance and laws relating to the disclosure of what is likely to be confidential information is adhered to, with legal advice also being sought in this regard.
It is essential that any report should be carefully documented in case your actions are later alleged to be discriminatory or you are accused of acting in bad faith towards your partner.
Providing there are no concerns about patient care, in the first instance the troubled partner should see their own GP or otherwise seek specialist professional guidance. It would be appropriate for the senior partner colleague who has responsibility for HR issues to address such matters informally (but confidentially) with the individual, keeping themselves appraised as to progress made.
3. Partnership obligations
In situations where the stressed partner does not seek treatment, or their condition continues or worsens, you should consider their rights and obligations as defined in the partnership agreement.
At the outset, when faced with a partner suffering from stress, you should be wary of relying on any provisions in the partnership agreement allowing for compulsory retirement due to absence or a failure to carry out duties. You should first establish whether the partner in question has a disability and what steps might be taken to limit liability in this regard.
An appropriate independent expert (not the partner’s GP) should examine the partner, and provide a report that sets out:
- A diagnosis;
- The condition’s effect on the partner’s ability to carry out their duties;
- A prognosis;
- The steps that might reasonably be taken to assist the partner.
An independent health report may recommend that a partner take periods of rest and then return to work in a phased manner. A failure to allow for this, even if a threshold set out in the partnership deed providing for compulsory retirement after a given period of absence is crossed, or a provision requiring that all duties are carried out is breached, could give rise to a claim under the Equality Act for failing to make reasonable adjustments to allow for the partner to remain engaged
If a medical report provides evidence that supports a retirement on ill-health grounds, the partners may discuss the possibility of voluntary retirement. In situations where this is not agreed and legal advice has been sought to confirm that compulsory retirement would not constitute unlawful discrimination, then the partners would wish to rely on a provision allowing for compulsory retirement after prolonged absence. It is common to allow for compulsory retirement after a period of absence of between 9 and 12 months. Practices with partnership agreements that do not include such clauses will be unable to retire a partner in this situation.
In any event, compulsory retirement may well give rise to a partnership dispute, notwithstanding the provisions of the partnership agreement. A well-drafted partnership deed will include provisions allowing for dispute resolution. Arbitration is often preferred over the courts as it provides confidentiality and can be quite flexible, but if part of the dispute alleges discrimination this will be heard in a public employment tribunal. Disputes where there is no partnership deed allowing for private dispute resolution, however, must be heard in the courts.
4. Medical services contract obligations
An important consideration when a partner is unwell is the implication for the GMS/PMS/APMS contract. If you seek to terminate the relationship by dissolving the partnership, you risk terminating your contract too, so it is critical to follow procedures for retirement (link to retirement checklist post) set out in a valid partnership agreement. In the current environment, dissolution would almost certainly lead to your contract being re-tendered, possibly even the possible closure of the practice. You could also be sued for breach of contract.
If a partner’s condition has given rise to fitness to practise concerns, this could lead to a suspension or erasure from the register. The full consequences of this lie outside the scope of this article but this would prevent a GP from being party to a core medical services contract.
It is critical that this is considered in the partnership agreement. Practices are advised to check that the partnership agreement takes account of the consequences of burnout, as the problem is growing.
As with any legal agreement, it is always advisable to seek the advice of an experienced legal team, who can help with your specific case and personal circumstances.
For more info about this, or any other legal issue relating to your practice, please contact Daphne Robertson on 01483 511555 or d.robertson@drsolicitors.com.
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GP surgery lease – managing your repair and reinstatement obligations
When you’re negotiating a lease for your GP practice it is important to ensure that you are aware of all the potential costs you may incur throughout your tenure – especially when you could be faced with bills running into many thousands of pounds.
One key area where costs can quickly mount up, and where disputes between tenants and landlords are common, is repairs, maintenance and reinstatement of the premises. This is particularly true if you are signing a full repairing and insuring lease (FRI), which places full responsibility for all such costs on your shoulders, as tenant.
Here we take a closer look at how you can best manage your obligations and minimise any potential for dispute.
- What is a Full Repairing and Insuring lease?
As the name suggests, under this type of lease the full cost of all repairs and insurance will be borne by you as tenant. This is true whatever the repairs may be, whether external, internal or structural. It is also established law that as part of your FRI obligations you must repair the property even if it is in a poor condition at the start of the lease.
If you are the sole occupant of a building on an FRI lease (a ‘lease of whole’), you will normally have full responsibility for the maintenance of the whole property. If you occupy a surgery which forms part of a larger property (a ‘lease of part’) you will be responsible for repairing the interior of the surgery, and will share with the other occupants the cost of repairs to the structure, exterior and common parts of the property through a service charge.
In addition to keeping the property in ‘good repair’ throughout the term, you may have to return the interior and/or the exterior of the building to their original state at the end of the term.
If you are in breach of any of your obligations during the lease, then your landlord may be able to claim damages, including the costs of repairs, loss of rent and any other damages. At worst, your landlord may seek to terminate the lease.
What are repair and reinstatement obligations?
Your responsibilities should be clearly set out in your lease. Typically, they will include:
- A responsibility to keep the premises in good condition throughout the term of the lease, not just at the end of the term (such as maintaining the roof, the heating system, the windows and doors etc)
- An obligation to clean and redecorate at regular intervals through the term and/or at the end of the term
- An obligation to remove and reinstate any alterations you have made
What do you need to be aware of?
The main problem you face with an FRI lease is that irrespective of the cause of the damage, as tenant you will be responsible for funding any repairs to the property – even if the damage was due to negligence on the part of the landlord. One rare exception may be if the landlord has already insured against a certain risk, details of which you should be able to find in the buildings insurance documentation.
A common cause of dispute is interpreting the extent of this repairing obligation. Leases can use phrases such as ‘the Tenant shall keep the Property in good repair and condition’, or ‘in a tenantable condition’. Even the word ‘repair’ can mean different things. This type of terminology is subject to endless legal wrangles between landlords and tenants.
Some lease agreements even include an obligation to rebuild. This carries a far greater potential risk to you as tenant, so is something to avoid, especially when signing a relatively short term lease.
Taking steps to protect yourself
If you are going to enter into an FRI lease then there are steps you can take to better protect yourself:
- Prepare a Schedule of Condition
Enlist the services of a specialist surveyor, who can examine and record the present state of the surgery. Your legal team should be able to help point you in the right direction with an introduction.
The surveyor will put together a ‘Schedule of Condition’ (SoC) for you, which may be written or even better, photographic. This will give you a detailed record of the state of the premises at the beginning of the contract. It may also highlight any important structural concerns or existing damage to the property that you may need to repair. You should then seek to limit the lease obligation to maintaining and reinstating the building to the same state and condition that it is in when you move in.
The SoC should be attached to and form part of the lease before it is entered into. If your landlord doesn’t want to agree to one at first, then persevere, as they will usually accept one eventually. But even if your landlord won’t agree, you should arrange to have one drawn up for your own records, as it could still be a useful piece of evidence when negotiating ‘dilapidations’ at the end of the lease.
- Ensure you understand the extent of the obligations in the lease
The extent of your obligations can turn on a single word or phrase in the lease. Since this is such a controversial (and expensive) area, the meaning of these terms has been clarified over the years through case law. The ‘real’ meaning is often not obvious to laypersons, so you would be well advised to have them explained by a specialist solicitor.
- Understand and negotiate the Service Charges
Ensure you understand what you will be paying for through the Service Charges, and negotiate accordingly. For example, why should you contribute to maintaining the lifts if you are only using rooms on the ground floor?
- Consider holding a sinking fund
As partners approach retirement, they have an incentive to leave the repairing and maintaining obligations for later generations to pay. This can cause some very nasty surprises for incoming partners. Best practice is to allocate an appropriate share of the rent reimbursement to a repairs and maintenance sinking fund.
Also, bear in mind that the less you spend on maintenance and service charges during the course of a lease, the more you may end up paying to reinstate at the end of the lease. This can create problems, especially for joining and retiring partners who will want to understand what the obligations are likely to be – particularly if there aren’t many years left to run.
Conclusion
Due to the huge responsibility and cost that an FRI lease places on tenants, it should always be entered into with caution and only after taking legal advice. Remember that a tenant has obligations for the full term of the lease and not simply whilst a partner in their practice.
And one final word of advice: no matter how good a relationship you may feel you have with your landlord, never rely on good faith or memory. Landlords move on and the landlord in situ when your lease eventually comes to an end may well view things differently to your current landlord.
For more advice on lease negotiation, please contact Daphne Robertson at DR Solicitors:
Tel: 01483 511555,
E-mail: d.robertson@drsolicitors.com
You may like to download our free eBook ‘Top ten tips when agreeing a surgery lease‘.
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The Benefits of a Social Enterprise versus Profit making Company
In our recent blog, Where will future practice income come from?, we explained how additional income is unlikely to come from your core GMS/PMS contract. As a result, many GPs are looking to supplement their income from other sources; from their CCG, from the local authority or in other ways.
It looks like the majority of new public money available to primary care will be funnelled through practices working together; the NHS Five Year Forward View, Vanguard monies and the much promised – but yet to be delivered – ‘premises’ money are all strongly suggestive of this. This is one trend in healthcare which seems likely to continue.
If you’re looking at working together with other practices, the chances are that you are either already a member of, or are considering setting up, a GP federation or a GP Network. In this first article in a series of articles linked to GP practice income, we will be looking at the benefits of running this as a social enterprise versus a profit-making company.
Introduction to social enterprise
Most GPs will be familiar with the traditional, profit-making enterprise, where the shareholders each receive a share of the net profits to spend as they wish. In contrast, many GPs know relatively little about social enterprises and their benefits, although they may be under some common misconceptions.
Working for a social enterprise does not, as is sometimes assumed, mean working for free. Everyone working in the business will be paid the going rate for providing their services, and suppliers all get paid in the normal way. Consequently, for most people, there is no practical difference between working for a social enterprise and for a profit making business.
The key is that any ‘surplus profit’ once all the costs of the business have been settled must be invested into the ‘social purpose’ as defined in the objectives of the company. Furthermore, if the business is wound up, any remaining assets would also need to be re-invested back into the social purpose. The precise definition of ‘surplus profit’ and how it can be spent is determined by the type of social enterprise. We will be looking at these different types in another blog post.
While the terms ‘non-profit making’ and ‘social enterprise’ are used interchangeably, it is important to note that a social enterprise can make a profit, and indeed it can be possible for some of this profit to be returned to investors in the business. It’s just that ‘surplus profit’ must go towards supporting the social purpose.
The practical implications and benefits of social enterprises
There are a number of potential advantages to running a healthcare practice as a social enterprise:
- Social engagement is much easier
Community support for social enterprises can be stronger as the business is seen to be working for a good cause, rather than for the investors. Local people may be more willing to contribute their time by volunteering or fundraising; the general feeling of goodwill may attract more patients through the door; there may be fewer complaints as people feel a degree of ownership, and; employees may show more commitment.
- Access to alternative sources of finance
Healthcare practices are traditionally financed through a combination of NHS funding and bank loans. Social enterprises may be able to supplement these with other sources of funding from ethically minded individuals or organisations who are happy to provide capital as a gift or at below market rates since they know that the ‘saving’ will be locked into providing the social purpose rather than extracted as additional profit by the business owners. Examples include community fundraising, crowdsourcing, bequests and legacies, and trust fund grants.
- More opportunities for joint working
It is widely understood that the future of healthcare must lie in better integrating primary care with secondary and social care and that GPs are key to coordinating a patient’s ‘healthcare journey’. The challenge is how to get such a disparate variety of participants to successfully work together. Trust is at the core of any working relationship, and some, if not most, of the necessary healthcare professionals may feel more committed to joint working for a social enterprise where ‘going the extra mile’ has a more direct impact on the community.
- Reduced risk of disputes between business owners
Social enterprises can be ‘owned’ in a variety of ways. Common methods include limited company shares and membership subscriptions. The most appropriate method depends partly on how widely you wish to spread ownership (e.g. a small group of GPs, all local health workers, or all patients?) Since social enterprises have minimal to no value to the owners, there is no goodwill to be valued and none of the resulting arguments between shareholders over the value of their investment on leaving the company. If someone wants to leave they are more likely to simply leave and take their services elsewhere.
- Preferential treatment?
Although CCGs and other public bodies are not currently allowed to prefer social enterprises in procurement, they are able to set selection criteria such as ‘demonstrating community involvement’ which social enterprises may find easier to meet.
In conclusion
Social enterprises hold many apparent advantages in the primary care sector. Since most costs are simply salary costs, healthcare is anyway not normally a sector which generates large ‘surplus profits’. For this reason, the ‘benefits’ of social enterprise can be accrued without the ‘cost’ of losing access to the (non-existent) surplus profit. These benefits include inviting trust from the local community which should hopefully result in better health outcomes.
If a GP federation or Network is set up as a social enterprise, the owning GP practices can remain as profit making partnerships and still be paid by the federation/network for the work they do in the normal way. The GP federation/network will then engage with the local community and with other health and social care providers to become a true ‘multi-speciality community provider’ as envisaged by Simon Stevens in the Five Year Forward View.
The bottom line is that social enterprises remain a little misunderstood. If you’re considering setting up or becoming a social enterprise, it is important to seek appropriate advice on the implications and on the legal entity.
DR Solicitors has already helped numerous GPs establish an operating vehicle for their joint working (GP federations and Network Companies), some of which have been established as Social Enterprises. Please contact Daphne Robertson or Nils Christiansen if you would like to discuss your joint working plans. We would be delighted to hear from you.
For more information about GP networks and federations and any other related issues, please contact Daphne Robertson on 01483 511555 or email d.robertson@drsolicitors.com
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Where will future practice income come from?
So how are you faring since the Health and Social Care Act 2012 came into force on 1 April 2013? After a stormy start (which included delays in contract payments for many practices and complications around the new rent reimbursement processes created by a change in landlord for those practices in NHS Property Services owned buildings) the dust has well and truly settled – leaving many GPs grappling to get onto the ‘GP Federation’ ladder in order to supplement their somewhat diminished income stream.
No longer able to rely solely on funding from NHS England, GPs are now, more than ever, having to become entrepreneurs in business – negotiating terms and bidding for new services contracts from the CCGs and Local Authorities.
The tendering process can be long-winded and time-consuming (unless you are unusual enough to be the only potential provider of a particular service). You may well have concluded by now that your best (and maybe only) chance of success in the new world of competitive bids and tenders, is for you to join forces with your neighbouring Practices. You can share the responsibility, liability and workload (both during the bidding process and after the contract has been won) and when done well you can better protect yourself, your colleagues and your patients from the vagaries of the health commissioners.
Many GPs have concluded that federating is the way forward and it goes without saying that you shouldn’t rely on the goodwill of your GP acquaintances and a handshake to seal the terms of your joint working. There are a number of options available to you when setting up a joint venture company and I will be exploring these in more detail in future blogs.
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<p>For more information about GP practice funding and any other related issues, please contact Daphne Robertson on 01483 511555 or email d.robertson@drsolicitors.com</p>
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Is a Mandatory Retirement Age for GP Partners Enforceable?
Many older partnership deeds include a compulsory retirement age for partners, often specified as aged 65. Should a GP wish to continue working beyond this age, annual written approval from the other partners is commonly required.
On the face of it, such a clause is discriminatory, in breach of the Equality Act, and therefore unenforceable. But if you are looking to include the clause in your current partnership deed, or if it is already in your deed and you are considering taking action to enforce it, what are the chances of success?
Case study: A law firm’s business needs vs discrimination
A long-running case regarding mandatory retirement ages for partners has set a precedent for future allegations of age discrimination. The retiree in question was the senior partner at a law firm in Kent, who was asked to retire at age 65 in compliance with the partnership deed. The courts found that in most circumstances, it would be discriminatory to attempt to enforce such a clause. This is consistent with the normal position for employees.
The tribunal did however distinguish the situation for partners, and concluded that in certain circumstances it would be acceptable to enforce a compulsory retirement age where the overall benefits to the business merited doing so: “Any determination has to weigh up the needs of the partnership against the harm caused by the discriminatory treatment”.
The key features of the ‘business benefits’ considered by the tribunal were enabling career progression for junior lawyers and, to a lesser extent, avoiding awkward conversations with ageing partners about their deteriorating performance.
This is in some ways a surprising outcome, since in most progressive law firms aspiring partners are expected to achieve partnership by winning new work rather than simply taking over someone else’s hard-won clients, and because a well-drafted partnership deed should already have addressed issues of underperformance.
Partner retirement from GP practices
Nobody has yet tested the case for mandatory retirement from a GP partnership in law, although we think it is only a matter of time before they do. Whether a judge would arrive at the same decision remains to be seen, but it seems clear to us that there are some significant differences between a GP partnership and a legal partnership.
The career progression argument will have particular resonance for a GP practice, because there is only limited opportunity for younger partners to ‘win new patients’. Also, the question of declining performance is likely to be accorded greater weight. It therefore seems likely that a GP partnership would have an even better likelihood of successfully defending a well structured compulsory retirement clause than the Kent law firm above.
Our recommendations
If you are considering implementing or enforcing a mandatory retirement age, we recommend the following:
- Ensure you clearly document the business reasons for your decision;
- Ensure that the retirement age is applied consistently across all partners and reviewed annually;
- Update your partnership deed to make clear what process is to be followed;
- Do not be tempted to copy someone else’s deed as it will almost certainly be out of date;
- Consider whether you want to tie any compulsory retirement age to the NHS pension age, which will soon be increasing to 68.
Bear in mind that the default position is that such clauses are unenforceable, so if a compulsory retirement clause were challenged a judge would want to see some very sound and consistently applied business reasons before allowing it to be used. The best advice is to simply avoid such clauses altogether, but if you are still keen to include one in your partnership agreement, make sure you seek the appropriate legal advice to ensure it meets the test.
If you or a colleague are planning on retiring soon, or indeed on taking 24 hour retirement in order to trigger your NHS pension, we discuss both matters in our recent article, ‘Planning to Retire as a GP Soon?‘
For more information about GP retirement and any other related issues, please contact Daphne Robertson on 01483 511555 or email d.robertson@drsolicitors.com
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Planning to retire as a GP soon?
The unprecedented pressures on General Practice combined with the age profile of the profession are creating a wave of partner retirements. What should you be thinking of before drawing your pension and booking your extended holiday in the sun?
1. Transferral of your NHS contract
The way you go about transferring your NHS contract will depend on your contracting route. A GMS contract can only be transferred through a partnership agreement, so it is important there is a valid partnership agreement in place on your retirement date. If you are a single hander, you will need to go into partnership with another eligible person in order to transfer the contract to them. Changing to and from a single hander requires 28 days’ notice to NHS England.
A PMS contract can only be transferred with the consent of all parties, so NHS England will have to agree to it in writing, and they are able to refuse regardless of anything written in a partnership agreement. Remember that if you remain named on a primary care contract after retirement, you may find yourself held responsible for its delivery.
If you are planning a ’24 hour retirement’, you will need to ensure that you and your partner are both able to come off the contract and come back onto it again afterwards. This will require a carefully drafted partnership agreement and, in the case of a PMS contract, the consent of NHS England.
If you cannot find anyone to take over your contract upon retirement, you may ultimately need to give notice to NHS England. You should generally ensure that this is a minimum of six months’ notice.
2. The surgery
The next major issue is usually the fate of the surgery. A freehold surgery will probably need refinancing, and a lease will need assigning (transferring). Both transactions can be time-consuming and problematic as they require the consent of the bank or landlord. This may not be forthcoming unless you are able to find an acceptable replacement partner to take over your obligations.
An option being explored by many practices is a sale-and-leaseback, but these transactions take time and are not suitable for everyone. Legal assistance should always be sought for any transfer of property, and early planning is vital to minimise the tax implications of the transaction.
Remember to always get a professional valuation of a freehold disposal to avoid any allegations of a sale of goodwill, and ensure your name is removed from the land registry and any property ownership deeds or declaration of trust.
3. Other valuable assets
If you and your partners own any other valuable assets, such as shares in a GP Federation or an interest in a pharmacy, you may well also need to transfer these. These will need to be valued in accordance with your Shareholders’ Agreement, and finance may need to be raised to buy you out. You will then need to complete and sign a stock transfer form.
4. Your accounts
You will want to instruct your accountant to draw up a final set of accounts, and take particular care around the cut-off date used for annual payments such as the QOF, which should normally be spread equally over the year. It’s important to ensure that you have agreed who is liable for settling debts (or collecting credits such as superannuation overpayments) which fall due after your departure.
5. Housekeeping
Last but not least, you should ensure that you are no longer ‘held out’ as a partner by coming off the bank mandate, the website, the letterhead and the nameplate, and you may want to seek an indemnity from the ongoing partners against any future problems being attributed to you.
Once you have made sure that any other Partnership Agreement obligations are complied with (such as for example transferring appointments where possible), you can return the keys, attend the retirement party, and bid a final farewell to patients and colleagues.
For more information about GP retirement and any other related issues, please contact Daphne Robertson on 01483 511555 or email d.robertson@drsolicitors.com
News
Considering a GP Practice Merger or Acquisition?
Over the last few years, we’ve been experiencing an increased number of practice mergers. Some of these are borne out of the desire to gain scale locally by forming ‘super partnerships’, while others are aimed at resolving problems. Either way, there are important steps to consider before a practice merger takes place.
Apart from the belief that ‘bigger is better’, practice mergers are typically motivated by seeking to resolve one or more of the following problems:
Merger or acquisition?
Whatever the motivations, GP practice mergers usually fall into one of two categories: true ‘mergers of equals’ and acquisitions.
The difference is important, because a true merger creates a business which is different from the original practices whereas an acquisition simply make one of the practices bigger.
Due to the regulations, both mergers and acquisitions will use the legal mechanism of going into partnership, and both will almost always be referred to as merger. However, it’s the reality on the ground is very different.
In an acquisition, the acquiring practice will impose their own systems, processes, management, controls and so on. Partners from the acquired practice will either be in a minority in the new, bigger practice, retire, or possibly become salaried. This scenario is most common when a single hander is retiring and looking to dispose of their practice, or when one of the practices is much larger than the other.
In a merger, however, all of these things will usually be looked at before selecting the ‘best from both’, The partners from both practices will generally stay on as partners in the new partnership with a shared vision for the future. Often this will involve new ways of working such as a management board to make day to day decisions in the enlarged partnership.
Caveat emptor (buyer beware)
Whether your practice merger is a true merger or an acquisition, there are risks and problems inherent in the process. GPs often seem to believe that a merger or acquisition is simply a question of drafting a new partnership agreement. Not so.
If you’re considering merging with or acquiring another GP practice, remember to ensure that you take the time to fully understand the other business. This process is known as due diligence, and encompasses identifying the actual and potential issues inherent in each practice, and deciding what the new merged practice will look like. Potential issues could be financial or legal so you should be looking at both the accounts and the various contracts and legal obligations.
For example, we’ve seen mergers that resulted in the transfer of large dilapidations costs on buildings, mortgage redemption costs, long forgotten pension fund liabilities, and legal disputes with current and previous employees. When these later crystallise in the merged practice they can come as an expensive surprise.
Download our step-by-step guide to ensure you don’t miss anything out when preparing for and executing a merger or acquisition.
For more information about practice mergers and acquisitions and any other related issues, please contact Daphne Robertson on 01483 511555 or email d.robertson@drsolicitors.com
- Difficulty in recruiting partners
- Lack of potential buyers of a surgery
- Too much time spent dealing with regulations and paperwork
- Current partners approaching retirement
- Inability to provide a broad enough range of services such as 7-day opening