GP practice mergers and acquisitions

GP practices combine for ordinary business reasons, such as partners retiring with nobody to replace them, rising costs, PCN work that’s easier at scale, or one practice having a good building and another having none. The legal work is similar to a small business merger, except that the main asset is an NHS contract which the commissioner has a say over, and the goodwill can’t be paid for.

I act for practices in England that are merging with, taking over or being taken over by another practice. Buying and selling businesses is most of what I do, and I also know the GMS contract and the NHS rules which apply to practices.

How a merger is usually put together

There are a few ways of doing it. The two partnerships can come together as a single new partnership, holding one merged contract or, for a while, both. Alternatively one practice can take the other’s partners into its own partnership, or one practice can take over the other’s patients, staff and premises when the partners of the other retire.

Which one fits depends on what each practice holds (GMS or PMS), who is staying, who owns the buildings and what the commissioner will support. In practice the commissioner’s view needs to be known first, as the commissioner (which for most practices means the ICB) has to agree to any merger of contracts and patient lists, and will want to know what it means for patients, premises and opening hours. It makes sense to talk to the ICB before spending much on legal fees.

The rules on goodwill

A GP practice differs from other businesses in that its goodwill can’t be sold. Under section 259 of the National Health Service Act 2006 it is unlawful to sell the goodwill of an NHS medical practice, and Schedule 21 to the Act makes it a criminal offence both to sell it and to buy it. Regulations made in 2004 (SI 2004/906) say that a GMS contractor, and a PMS contractor with a registered patient list, may not sell the goodwill of the practice in any circumstances. The same goes for a share in a company holding the contract, if the price includes an element of goodwill.

So nobody can be paid for the patient list or for the right to take over the contract, however valuable those may be. Payment can be made for the premises, equipment and fittings, drug stocks, and a partner’s capital and share of profits already earned, each at a proper value.

The legislation also deals with attempts to describe a payment for goodwill as something else. Schedule 21 treats a sale of surgery premises as a sale of goodwill if the price substantially exceeds what the building would fetch had it not been a surgery. It does the same with payments for being taken into partnership, and with payments to a retiring partner beyond their share of earnings and assets. Valuations therefore need to be independent and capable of being defended. Where there’s real doubt, Schedule 21 lets the parties ask the Secretary of State for a certificate that a transaction doesn’t involve payment for goodwill, and a certificate is a defence if anyone is later charged.

Paying for goodwill under another name is a crime, so I’m not helping with that, but I can help you work out what can properly be paid for.

What the legal work involves

Each practice needs to know what it’s joining, which means a proportionate round of due diligence on the other side, covering its contract and any breach or remedial notices, CQC reports, accounts, staff terms, premises, complaints and claims, and its partnership deed, and in a merger this is done in both directions.

The terms then go into a merger agreement or, where one practice is taking over another’s assets, a business transfer agreement much like an asset purchase agreement. It deals with what transfers and at what value, who is responsible for liabilities from before and after the merger date, what each side promises about its practice, and what happens to partners who aren’t staying.

The combined practice needs a new partnership agreement, and it’s worth starting on it early, as most of the disagreements in a merger are about profit shares, parity between the two groups of partners, who manages what, and property, all of which are dealt with in the deed.

Staff of a practice that’s being absorbed transfer under TUPE on their existing terms, after an information and consultation process. The combined practice then has two sets of contracts and pay scales, which either stay as they are or have to be brought into line with care. I’ve written about how to tell employees a business is changing hands.

The premises are often the most difficult part, as there may be leases to assign or surrender, a building owned by retiring partners, or NHS rent reimbursement that depends on how a site is used. A property colleague at Nexa does that work alongside me and quotes separately. CQC registration has to be updated for the new partnership and any change of locations, which is for the practices to do.

Outside investors and larger groups

I’m also seeing approaches from companies and larger provider groups that want to take over or invest in a practice. These need particular care, as a GMS contract can only be held by people and companies that meet the conditions in section 86 of the 2006 Act, the goodwill rules apply to them just as they do to GPs, and the commissioner will look closely at who ends up controlling the contract. If you’ve had an approach like this, take advice before signing anything, including the confidentiality agreement.

How long it takes and what it costs

You should allow several months. The legal documents for a simple two-practice merger can be drafted and agreed in two or three months, but the commissioner’s approval normally sets the timetable. Practices tend to pick a merger date that suits their accounting year and the clinical system changeover, and work back from it.

The fee is fixed and agreed in writing before I start. A straightforward merger of two practices usually costs between £5,000 and £10,000 plus VAT. Mergers of more than two practices, or with complicated property, cost more, and I’ll quote once I’ve seen what’s involved.

Next steps

If you get in touch, let me know which practices are involved, what contracts they hold, who owns the premises and when you’d like it to happen. The earlier you involve a solicitor in the process, the smoother it will go.