Strength in numbers or too much of a risk?

31 May, 2016

While many GP practices are forming federations, others are thinking about merging. Justin Cumberlege, a partner in the healthcare team, looks at why bigger can often be better.

 

Although merging two failing practices does not create one successful practice, there are often reasons why a larger business is able to succeed where small ones cannot – simply by avoiding duplication. Such economies of scale can be significant, and GP practices lend themselves well to it because of the high level of regulation and the cost of items such as sufficient reception cover and a practice manager.

 

For example, a practice with 4,000 patients has to meet the same performance requirements as one with 8,000 patients on their list, but the larger practice won’t need twice the number of support staff.

 

If you have a patient list of 30,000 then the economies of scale start to become significant. You may be able to negotiate lower prices with suppliers as you use more of their product. The extra resources may also allow you to employ people to do some of the work GPs have to do in smaller practices where it is ‘all hands on deck’ whatever someone’s position. This means you can look after more patients at a lower cost.

 

Having succeeded with the economies of scale, the next step is to see what additional services you can provide by serving a larger population. This directly increases income to the practice (although you need to make certain the increase in expenses is less in order to avoid creating a loss).

 

These are just some of the potential advantages of forming a federation or becoming a larger practice through a merger. Although more difficult, and with greater risks involved, a successfully merged entity is going to be stronger, in most cases, than a federation. This is due to it being a single organisation with aligned interests. However, reducing the risks when going through the merger process is vital.

 

Here are some things to consider:

  • Partners – look through the other practice’s partnership deeds to see how they are organised compared with your practice.
  • People – consider contracts, rates of pay, holiday entitlements and management records. What will their ongoing roles be in the merged practice?
  • Profits – will drawings be the same or similar for the partners of the practices?
  • Property – who owns the property and what are the liabilities? How are they to be dealt with on merger?
  • Capital – how much capital does each of the partners have in their practice?
  • Debts – is there a mortgage on the property or other large debts to manage?
  • Contracts – GMS/PMS contracts may not be possible, or too great a risk, to merge.
  • IT – are you on the same system? If not, how will records be integrated?

If a merger is on your radar, consider the risks and ask us for our specifically designed questionnaire to start you on your way. 

 

For specific guidance on this and other legal issues, contact Justin Cumberlege on justin.cumberlege@cripps.co.uk or on 01732 224107.