More and more GPs are looking to exit their practices, but the process is lengthy and potentially costly. David Edwards, head of the healthcare team at Harrison Drury, discusses the main issues.
The urgent need for GP practices to implement viable succession plans is underscored by figures from a 2015 survey of family GPs by Communicate Research which showed more than half of family doctors are expecting to leave the profession before they reach 60 years old, with 25% intending to leave within the next five years.
Recruiting salaried GPs and partners to replace retiring doctors can take up 12 months or even longer depending on the size and scale of the practice, making forward planning still more crucial.
The medical profession in transition
Traditionally, the ambition of young GPs was to become practice partners, but the profession has seen radical change in the last decade. Work-life-balance is considered to be much more of an important factor, with over one in eight GPs reporting stress in the workplace.
As a result of this, there has been a downward trend of GP partners in the UK, with the effect that the number of salaried GPs has risen by 435%, from 1,712 in 2003 to 9,153 in 2013, according to figures released in 2014 by the Health and Social Care Information Centre.
Resolving property issues is key to exiting a partnership
Property is a key element of any succession plan, and can be held as freehold or leasehold by the partners, usually either as joint tenants, each partner having an undivided share in the property, or as tenants in common, where each partner has a distinct beneficial share in the property.
Generally, business premises are held under a Tenancy in Common. While changing from a Joint Tenancy to Tenancy in Common is fairly straightforward, it is important to check how the partners hold the property to avoid any problematical issues arising on retirement.
In addition to this, if the property from which the practice is operated is leased, partners must make sure that the retiring partner is removed from the lease, and further, if a new partner is appointed that their name is added.
Where the partners freehold the property, the exiting partner must decide if they are going to retain their equity or sell up. If a sale is necessary and a replacement cannot be found, the remaining partners may have to buy the outgoing partner’s share.
Cost implications of closing single doctor practices
The process of retiring for single doctor practices is complex and requires a plan of two to five years. When NHS England receives the GP’s notice of retirement, either the practice services will be put out to tender, or the patient list will be dispersed amongst local practices.
Where practices are put out to tender, employees may be transferred to the new employer under the TUPE regulations. However, small lists are more likely to be dispersed to local practices, leading to potentially significant costs for exiting GP partners. At a minimum, the GP has to fund statutory redundancy costs.
It is also important to ensure you are not left repaying a mortgage after NHS England funding has ended and the practice is not receiving any money to finance the mortgage. Alternatively, if your property is leased, if possible you should plan your exit to coincide with any break clause in the lease. All contracts should also be scrutinised to avoid or minimise ongoing liabilities.
Taking on a partner or merging with another practice can be an effective way of avoiding the significant costs of closing a practice. For either of these options to materialise, the practice will likely be heavily scrutinised by the prospective partner or merging practice, and therefore substantial forward planning to get the practice books in order is needed, and this cannot start soon enough.
On top of employment and property considerations, partners must know what their rights and obligations are once they decide to leave a partnership. Under the Partnership Act 1890, a retiring partner essentially has to serve notice to dissolve the entire partnership, with the statutory rules of financial distribution coming into play.
Without a properly drafted partnership agreement, the partnership will be subject to a technical dissolution, whereby the current partnership with the retiring partner is wound up, and then another partnership without the retiring partner is started.
However, if the partners have previously entered into a Partnership Agreement, there should be express retirement provisions dealing with the retirement of an existing partner, and also the admission of a new partner, which would mean that the partnership continues to be effective.
While technical dissolution is likely to have little effect in practice, in a purely academic sense, it is commercially undesirable, and there are a number of partner protections that are not included in the 1890 Act, such as obtaining interest on capital investments, restrictive covenants following a departure, and an agreement for profit share (under the act, this is shared equally between the partners, regardless of levels of experience or time working for the firm), all of which should be drafted to take account of the bespoke needs of the practice and its partners.
For further advice on succession planning for GP practices, or any other legal matters relating to legal healthcare matters, email David or call the team on 01772 258321. We have solicitors based in Lancaster, Garstang, Kendal, Clitheroe and at our head office in Preston.
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