Primary care experts, Justin Cumberlege and Robert McCartney, discuss the intricacies of merging GP practices.

They begin by clarifying what a merger typically involves - two or more practices coming together to operate as a single entity.

The conversation explores the strategic motivations for merging, such as financial sustainability, improved service delivery, and increased influence within Primary Care Networks (PCNs). They highlight the benefits of scaling up, including shared responsibilities, enhanced workforce capabilities, and greater resilience in a rapidly evolving NHS landscape.

The episode also examines different structural models, including incorporation as limited companies, and how regulatory changes have made such models more viable. The importance of thorough preparation is emphasised - particularly in establishing a shared vision, conducting due diligence, and understanding each practice’s assets, liabilities, and staffing structures.

Key legal and operational considerations are discussed, including staff restructuring, premises management, regulatory compliance (such as CQC registration), and the novation of GMS contracts. The hosts stress the value of early legal input, confidentiality agreements, and well-drafted heads of terms to guide the merger process effectively.

Thank you very much for coming onto the podcast for Hempsons. We’re a firm of solicitors and cover the country, and I'm Justin Cumberlege. I'm a partner and I head up the corporate primary healthcare team in the south of England. And I'm with Robert McCartney, one of our associates in the team.

Today we are going to be talking about mergers of GP practices. So, thank you Robert, for joining me for this conversation. So, why don't we just kick off with what is a merger?

Okay, thanks Justin. Now, a merger is an interesting kind of concept because everybody seems to know what they are until we start looking at them in detail. Generally, in the primary care world, what we are talking about in general practice is two or more practices coming together to continue providing services as one entity. That at its kind of core starting point, is the objective and the outcome that they're normally trying to look at. How they get there and what that actual structure looks like is variable.

Yeah, and as you said, almost the first question is, why merge? So, we know that if you merge, you're gonna get bigger and you're gonna lose a bit of control as well. Especially if you were single handed and you then merge into a practice which has got other partners, you've suddenly got to, you know, compromise a bit with them and agree things before whereas before you, you were your own boss. So, some of the reasons for merging perhaps, do you think are financial, or…?

I think the financial is definitely a driving factor, whether or not our accountant colleagues would always agree, I think it really depends on the nature of the practices. Certainly, responding to opportunities in the changing NHS, and it's quite a wide term there, but the ability to react to new contracts coming out, the new services that are being delivered, potentially securing the position of your practice and your patient base within your PCN and on a larger scale into the new kind of neighbourhood teams going forward. Those are more likely to be driving some of the merger work, where you want to have that greater influence and not almost kind of be pulled along by the system to actually be able to shape it yourself.

Yeah, and if you're a single hander, I mean, it is incredibly hard to keep tabs on all the different changes that are happening, and you're trying to do it all on your own, and as you said, the changing landscape just makes that even more difficult. And by scaling up you can share those burdens with others and exchange information and think together how you're gonna do it. So, you're sort of building up the resilience, aren't you.

In terms of actual service delivery as well, the opportunities are quite substantial. If you are a grouping of smaller practices who've got an excellent nursing workforce between you, but one of you has an expert nurse who also does diabetes, and another practice has one that's very good at respiratory issues, then actually you've got an opportunity to create a single workforce there delivering clinics and services your patients that can actually be designed to meet the needs in a way that you might not be able to individually.

And of course, the pros and cons of PCNs are something that will always be debated, but certainly one of the pros has been the ability to deliver services at scale and to be able to shape services around your communities in a way that hadn't been there before PCNs arised and a merger was a way of formalising that and taking it to the next level.

Yeah, and as you've seen that those practices who have actually merged so that they are the PCN, are often the ones that are really in a very good position because they can control the sort of whole funding and health economy at primary care level in their area. So yeah, that works well.

So, we always think about merging, two practices coming together, as a partnership, but how about, you know, they could become a company.

They could use, yes, the incorporation model, where they establish a standalone business, which is normally limited by shares. It would need to be, if it's to hold a GMS contract. It's owned by what used to be the GP partners, so there's that continued ownership, and it is run by them, normally through their board of directors and their senior management team. That is a possibility.

Justin 05:55

And they did it for tax reasons, which don't apply anymore.

No, no, indeed. So, some of those benefits they had back then weren't, uh, applicable. What happened? It feels like as one of these elements of the PCN work combined with the issues that arose after the, on from the pandemic, was an easing on the ability to change how services were delivered, and a willingness from a commissioner perspective to look at alternative models and to use and to permit the use of limited companies, which had previously been blocked marked and the not.

There was also a change in procurement, which has made that easier now. Because that was certainly one of the grounds before. I believe it's under the Provider Selection Regime.

The ICB can decide that you are the only people in town who are going to be able to provide this service, and therefore they don't need to go out to procurement and they can award the contract to your new company. And actually, merging is often the opportunity to put together the business case for creating the company. And it's a whole separate subject on its own, but the incorporation of practices can have quite a number of advantages to consider.

So, just in terms of the merger process, let's just think about that for a moment. First of all, is there any sort of preparation work that we would advise practices to think about?

I think we generally take the view that you need to be spending more time on your preparation and planning than you do on any of the kind formalities and the legal processes that we get involved with. Because that planning and preparation will underpin the success of the new model and the new business in the future.

Starting with at its absolute core root is, why are you coming together and can you all work together? That relationship question, you know, because you are gonna be bound together for a legal concept for a long time potentially. So, what is it, what is the driving focus that is underpinning the need for this change?

And that's the vision. What's your vision? And getting together to work that out is, is important. And then once you've done that, I mean, involving us as lawyers, is really to look at what is each practice? So, it is lifting the bonnet. You've got to get to understand the other practice.

So, it's not just the accounts, but you know, what are their assets? What do they bring positively to the table? What contracts are they entered into? And you might have contracts that duplicate, for instance, your telephone systems. So you don't wanna have two telephone systems to contact. So, how can you terminate one of them? How easily? And is it the one that's the better one that you can keep going with.

And then, what are the liabilities, and are they liabilities you've got to ring fence? So, there may be things that you say, well look, in the new merged entity, we're not gonna take on that particular liability. It might be even premises. You might have a lease of premises that you want to get rid of and you say, well, that stays with those particular partners, it won't come into the new entity. Or, we'll take on those liabilities, but they’re going to be managed in a different way or things like that. And then of course you've got staff.

Yeah, with the staff, you could have quite significant impact on the changes of their terms and conditions, and they have rights that need to be addressed and planned for. To give an example of one that I dealt with, where it was three practices coming together and all three practices had practice managers. They needed to work with the practice managers because they had fundamentally so much of the information and knowledge that it was gonna underpin success of the new merged entity and the merger itself. But they also were aware that they were at risk. There was not necessarily a justification to retain three practice managers in one practice.

In that scenario, in that particular case, one of them elected to take early retirement, which was beneficial. But the other two a redundancy program had to be run and it was run through a relatively early stage in the process because it was so important to get that solid kind of implementation. When I say early in the process, I should say early in the process, post completion, because it's only at that point was the restructure applicable.

Yeah, but in another case we had, one of the practice managers was really good on finances, and all the sort of technical, sort of hard stuff if you like. And then the other practice manager was very good at the HR and managing people and all those sort of soft skills. So there, they complimented each other, but of course you needed the resources and you know, the earnings to be able to have essentially two people in those posts. But because they were merging, they were both big practices, they were able to do it and together, had a stronger administrative team.

Well, that then kind of flows to the rest of the team as well, because you're likely to have changes that impact on other workforce that isn't necessarily redundancy, but could still be restructures. So, your admin team, for example, might have to work in a different office location. They might have different hours, they might have a different process to follow. Likwise, your nursing team or the rest of your clinical team might be expected to undertake different ways of working. And the question is, are those variations to their terms and conditions, or are they acceptable kind of changes to how they operate?

And this type of advice is really urgent to get kind of early on to make certain you don't accidentally put yourself in this position where you've got potential claims against yourself.

Yeah, constructive dismissal, that hideous thing. And then premises is another one, which again, is quite often sort of parked and then comes back and bites people when there's a retirement or new partners join or whatever. So, again, think about the premises. If you've got a lease, you might have dilapidations claims coming up in the future. If you own the premises, then on what basis are new partners or the partners from the other, as it were, practice joining, going to be able to invest in those premises?

So while you might want to park those things, you do need to think how you're gonna tackle them in in the near future. It will come up quite quickly, and all those terms that are in your partnership deed, you'll need to work through. So, all the management, how you're going to manage performance, that you agree, whether you're gonna have terms such as retirement, you know that so called green socks clause and things like that. You need to work through all of those. There are of course some regulatory things and Robert, as a former project manager knows awful lot about those.

Well, indeed, and I think timeframes are probably the bit that you need to bear in mind, above all else. We all know that CQC has got pressures at the moment. If you are in a situation where your merger is gonna result in a new entity forming, you might need to make a brand new CQC application. And that could be nine months of waiting time after you make your submission, let alone the time it takes to prepare and make the submission in the first place.

If it's anything less than that, so it's notifications of changes to your partnership, as in additional partners coming on board, changes to your registered manager, changes to locations, it's not as bad. It's all based on your kind of notification process, and CQC can generally process them a lot quicker, but it is still a significant element that needs to be factored in. And that's before easy to overlook issues such as your information commissioner office registrations, your registrations with your data protection security toolkit, and a whole range of kind of other easily overlooked kind of elements that are out there that you just need to make certain are coordinated for the new structure.

Yeah, and also if you're creating a new company, you're gonna have to novate your GMS contract. So, it is not just doing a variation where you're bringing on the other partners onto one of the contracts. It's actually a novation. So that is a discussion or a business case at least, which goes up to the commissioner.

Although they have to have really, the only grounds they can resist, not allowing the contract to be novated to the incorporated company, is patient safety and the sustainability of the practice. All the same, there is some need, and as Robert was saying earlier, that they are convinced that this is gonna go ahead and not jeopardise the delivery of care to patients in the future.

So, on the legal documentation side, what would you say is the first thing people ought to be thinking about?

So, before you take any action, what you want to start with is your confidentiality agreements, and heads of terms, so that those communications about your vision or what you're trying to achieve, start then documenting, what does that actually mean in terms of the legal kind of requirements? Confidentiality is particularly important when you're gonna start sharing information about your finances and about your performance and any potential complaints. You need to have that assurance that that information isn't going to go elsewhere.

That then can feed nicely into, as we were talking about earlier, the sharing of the information, which takes you through to kind of due diligence, where we could, assist with that by putting a data room and electronic, on the cloud, I should say, a place where you can store documentation, and a report could be produced to highlight what the risks and issues might be.

All of that underpins the first decision point of whether or not to go to the next stage of actually formalising and proceeding with the merger, which is where you move into your actual formal agreements.

Yeah, so you have your merger agreement and don't let your lawyers start producing hundreds of pages, well, not literally, but, large documents without getting the framework really sorted out in your heads of terms. So, that's where you write down what are the big issues, and how are we gonna deal with them? Like, who's gonna be in this partnership? Are some partners gonna be retiring, either on the merger or shortly afterwards? Who is gonna go, what are you gonna do about the property? What are you gonna do about the staff?

All those things we've been talking about, set those out in your heads of terms. Profit shares, how are you going to determine those and perhaps synchronise those in the future? And then you draft the merger agreement and you put in the detail at that stage. And then your partnership deed, or in the case of a company, articles of association and shareholders agreement, is also thought through. And that will tell you what you're gonna do in the future.

I hope that's been useful. Do please get in contact with us if you are thinking of merging or if you are incorporating your practice. Robert and I would be delighted to help you through that process. Or one of our other team, I mean, we are the largest primary care corporate team, so, there's a lot of experience and resource here, so please do get in contact. Thank you very much.

Thank you everyone.