If you are considering a practice merger, it is essential to not only make sure that the merger process runs smoothly, but that the operating and legal structure is one that puts you in the best possible position to realise the number of benefits that come from working at scale. With this in mind, we have come up with our top ten tips.
1. Have an agreed vision
Sounds obvious? Do ensure there is clarity and agreement among all GP practices over the proposed direction of travel that the merged practice will take, and the aims of each practice entering into the merger.
This may evolve over time but an essential part of any successful merger is that there is agreement at the outset as to what everyone is seeking to achieve from the venture. Whether it is to facilitate retirements, achieve cost savings and growth or otherwise: an open discussion should take place.
2. Due diligence: be clear on who you are merging with.
Two of the most common reasons for mergers failing to achieve their potential is down to:
- Issues and liabilities arising in respect of a practice or number of practices that were not expected and/or accounted for
- Opportunities (such as opportunities to break a lease) being missed
To overcome this, and to ensure appropriate steps are put in place to manage any perceived issues and/or take advantage of opportunities, practices should be encouraged to carry out a legal and financial due diligence exercise.
The exercise will involve asking questions and sharing information, so there is visibility over the practices and their legal and financial positions.
3. Core contracts: be clear on how the NHS core contracts will be handled when it comes to merging practices
Generally, you will either find a situation where all core contracts will be retained (and all individuals will be named on each core contract) or where one core contract is retained but varied to incorporate the services delivery of the others.
For various reasons, not least as it gives the flexibility to ring fence potential issues while preserving all others in the “group”, we generally see situations where all contracts are retained.
4. Be clear on the structure of the merger
This is likely to vary depending on the size of the merged practice but you are generally looking at the degree to which functions will be centralised.
Larger merged practices tend to adopt a more decentralised model with individual constituent practices retaining their autonomy and (potentially) operating within their own cost centres.
While this may appear an ideal position at the outset, various problems can arise ranging from conflicts, a divergence of working and a loss of opportunity (that can arise from collective working) where excessive autonomy exists in the mid to long term.
This can be managed, but the tip is to ensure that the structure establishes a balance between three potentially competing elements, namely:
- The engagement and representation of all
- The preservation of autonomy
- The need to ensure that decisions can be taken to achieve business development and growth
What may prove beneficial is to set agreed milestones whereby functions will centralise (to the fullest extent agreed between the practices) as time goes on,
5. Decision making: be clear on how decisions will be made
As practices grow in size, the likelihood is that the decision-making process will evolve to ensure business efficiency.
As part of this, you may well find that while certain decisions may be reserved for the approval of a set number of the partners as a whole (whether all partners, a set majority or a simple majority), various decisions are likely to be delegated to an executive board (and their sub-committees) and/or to individual practice level. What works for you will depend on your circumstances, but we would urge that a decision-making model is adopted, which achieves a sensible balance between the three competing elements referred to above.
6. Know your global premises’ stock
This area can sometimes be overlooked. While recognising that premises can represent one of the biggest issues but also the biggest opportunities for practices, we would recommend that time is taken to clarify the current premises “stock” as between all the practices and the terms upon which they are occupied. For example, if leasehold, what are the terms of the lease, if a freehold, is there any bank borrowing in place?
Once this is known, practices should look to establish their short, mid and long-term plans for the properties. This could involve, among other possibilities, centralising into a hub, redeveloping sites, moving ownership into a property investment company (allowing for partners to choose whether to buy in or not).
7. Partnership agreements are key
Be clear on the terms that will govern the partners or parties involved in the merger. Just as you are likely to have covered off in your own partnership agreement pre-merger, items such as duties, obligations, profits and losses, retirement, decision-making, income and expenses should all be covered off.
For further guidance on partnership agreements, you can find our top tips here.
8. Be clear on the terms on the business transfer
Just as you want to make sure that there is clarity on the terms that will govern you following the merger, be clear on the terms that will apply when the practices formally come together.
This will involve various considerations, including:
- What assets and contracts will pass (and, excluding goodwill, what value will be paid)
- How will income and liabilities be handled
- What promises or statements (known as warranties) will be made by the practices
- How accruals will be treated (particularly in connection with outstanding service/ facility management charges)
9. Take care of regulatory considerations
Aside from considering how contract changes will cover a merger, be clear on the implications of a merger when it comes to CQC and NHS Pensions.
In relation to CQC, remember that the technical position is that no change in the constitution of the “provider” should occur unless the CQC has been notified and approved it.
10. Looking after your staff
Any merger of practices will likely result in the automatic transfer of employees under the operation of TUPE. With this in mind, care should be taken to ensure that you are complying with your obligations when informing and consulting with affected staff members and providing so called employee liability information.
The TUPE process aside, more practical issues may need to be overcome. This may include redundancies in the situation of staff duplication, differing terms of employment between practices, a lack of mobility clauses (which allow cross-site working) and a difference in ethos.
You should consider and discuss all of these issues to find out what (if anything) you can do to remedy them.
We can help
This note provides a very high level overview of some of the top tips when it comes to drawing up a partnership agreement. If you need advice and/or support in relation to drawing up or amending a partnership agreement, please do not hesitate to contact our team.