GP PRACTICE MERGERS Workshop – Spring 2014 Bob Senior, FCA This uses a slide layout which has a fixed image. To see instructions to change slide layout see slide 5 GP PRACTICE MERGERS Workshop – Spring 2014 Bob Senior, FCA Head of Medical Services, Baker Tilly Chairman of AISMA, email: bob.senior@bakertilly.co.uk

Real World Considerations The background image in this slide can be changed. See slide 8 for instructions. See slide 5 on how to change slide layouts To Merge or not to Merge ? Real World Considerations

PRACTICE MERGERS WHAT ARE THE DRIVERS FOR MERGER ? Threats to practice profits- stable at best Succession issues- particularly single handers Increases in workload Contract changes- MPIG and PMS reviews, QOF, Enhanced Service provision and AQP threats Premises funding and space availability Delivering better patient care The ultimate aim of Federation? MANAGING A CHANGING PRIMARY CARE

PRACTICE MERGERS ADVANTAGES OVER FEDERATING Operating from one single merged practice is no doubt easier from an admin perspective Maximises economies of scale Removes VAT and NHS pension membership issues One practice- single vision One practice- unity of patient care One practice – unity of culture One practice- unity of finance

PRACTICE MERGERS KEY AREAS TO CONSIDER Contract types and comparisons Premises Dispensing (vat registered) or Non Dispensing Comparison of financial results Staff terms and conditions Working methods Clinical approach Partnership agreements Year end dates Governance

PRACTICE MERGERS CONTRACT COMPARISON Can the contracts be merged or will they have to be kept separate? GMS,PMS,APMS,SPMS How long does the APMS contract have to run? PMS contracts – is the funding per patient comparable? How does this compare with what would be payable under GMS ? PMS REVIEWS MPIG CORRECTION FACTOR How much could be lost on a full time partner basis LAT agreement to vision needed at earliest opportunity

PRACTICE MERGERS PREMISES Watch out for nasty surprises: Significant fixed rate loans with high interest rates and potential redemption penalties Lease terms- how long to run and what are the terms? Beware significant dilapidations provisions Potential service charge issues- NHS Health Centres Fixed Cost Rent? When does this expire and what could trigger a cessation How does Fixed Cost Rent compare with Notional Rent value? CQC issues?

PRACTICE MERGERS PREMISES Do you need new premises? Terms of partnership agreement re retiring partners How are premises currently financed? What is the current yield? Opportunities to refinance Finance a partner buy out Manage the interest rate risk Capital recycling and extraction Move to a new bank Remember to consider future new partners ownership and property capital requirement

PRACTICE MERGERS Dispensing or non Dispensing ? VAT registration and effects on private fee levels, administration and cash flow Two non VAT registered combined vatable T/O taking them over VAT registration threshold Consideration as to a separate company for private fees Differential dispensing profits ?

PRACTICE MERGERS Comparison of financial results More complex than looking at profits per partner per the practice accounts Compare Apples with Apples! Different accounting treatments? Employers superannuation How many sessions are Full Time? How are expenses such as subscriptions, locum insurance, motor expenses dealt with? Exposure to PMS reviews or MPIG removal How is seniority shared? How are bank loans reflected- through practice or do partners pay privately?

PRACTICE MERGERS Comparison of financial results Work done outside partnership time Additional contracts, skills, practice specific arrangements Make all necessary adjustments to compare like with like Then calculate the PROFIT PER PARTNER SESSION- single most important financial comparison If different consider how you will deal with A short term differential profit allocation may work initially BUT you must work towards harmonising profits within a couple of years

PRACTICE MERGERS Comparison of financial results Calculate the staff cost per patient for each of these staff groups: Admin and reception Management Nurse practitioners Nurses Health Care Assistants Look for significant differences that may indicate very different working practices REMEMBER THERE WILL USUALLY BE A STRONGER PRACTICE FINANCIALLY BUT THIS DOES NOT NEED TO BE A BARRIER

PRACTICE MERGERS Other financial considerations Drawings net or gross of tax who pays the tax ? Working capital commitment- If increases are needed how are these to be funded practice or personal borrowing New partner working capital requirement and how this will be met Methods to equalise Do not ignore this is partner’s own money!

PRACTICE MERGERS STAFF TERMS AND CONDITIONS Look for differences Agenda for change terms? Do you pay overtime or give time off in lieu? How do rates of pay compare? Are contracted hours the same? There will be some differences and if you merge you will need to move to whichever is the most generous Get buy in of teams at earliest opportunity fear is counterproductive and staff may give great contribution of ideas

PRACTICE MERGERS WORKING METHODS Could be a key barrier- How does a full time GP compare from one practice to the other: How many sessions are full time? How long is a session? Are all sessions clinical or is there a dedicated admin session? How many patients does a GP see in one day? Delegation of work to NP, Nurses ? How many patients does a FT doctor look after?

PRACTICE MERGERS CLINICAL APPROACH Are there differences in clinical approach? Can these be harmonised? What does this really mean- If you would not want a family member to be patient of the practice then should the merger go ahead?

PRACTICE MERGERS PARTNERSHIP AGREEMENTS Look for material differences in the partnership agreements you will need to create a new partnership agreement that all are happy with Key areas of potential difference : Provisions re absence for sickness How are maternity/paternity locum costs dealt with? Are arrangements re practice and personal cost comparable Are there consistent provisions for removal of a partner? Provisions governing surgery ownership and what happens when a partner joins or leaves are these consistent

PRACTICE MERGERS CONSIDER YEAR END DATES ARE THEY THE SAME? If not one practice will have to change This can lead to earlier crystallization of tax and superannuation liabilities Not extra tax and superannuation but it may be payable earlier and this can be significant in size you may need to plan to fund this Arises when a year end moves to March from a non March year end Consideration also needed to the Annual Allowance tax charge where superannuable profits are brought forward

PRACTICE MERGERS Who is going to drive the leadership of the merger? GOVERNANCE How large will the merged practice be ? What are partner’s expectations? Who is going to drive the leadership of the merger? Different individuals to steer different areas: Staff QOF Enhanced Services Finance Involve key staff members Delegation of areas of leadership in merged practice

PRACTICE MERGERS CONCLUSION Where are you trying to get to? What are the obstacles to achieving this? Aligning partner’s expectations What is the vision DON’T lose sight of the vision? Is there united belief in the VISION? Who will lead and make it happen? PARTNERS MAY BE THE BIGGEST OBSTACLE CHANGES WILL BE NEEDED AND ALL MUST BUY IN IT WILL BE A CHALLENGE!

Any Questions?