The Resurgence of Mergers

What is a merger?
A merger is the union of two or more commercial interests. In some cases a merger may be achieved in practical terms by one practice continuing and the other practice or practices ceasing to trade, with the partners from any practice which is ceasing to trade joining the continuing practice.

In some cases, residual commercial activities may remain with the original organisations.  So, for example, two GP practices could decide to merge for the purposes of general medical services (GMS) provision but leave certain specialist services to be provided by the original practices.

It is therefore important to identify whether practices will be merging in their entirety or whether certain activities will be outside the scope of the merger.

Why merge?
The reasons that practices might merge are well-documented and include:

• Potential savings on staff and other costs
• Increased capacity to achieve targets, win new work and provide a broader range of services
• More partners to share workload, cover absences, etc
• Pooling of expertise
• Sharing administrative burden
• Reducing the risk of GMS contracts and/or personal medical services (PMS) agreements being terminated in the event of a contractor’s death or retirement by ensuring that there are multiple contract holders.

With regard to the last point, recent announcements that alternative provider medical services (APMS) contracts will replace GMS contracts and PMS agreements when practices close and are retendered have caused alarm across the profession, primarily on the basis that APMS contracts are time-limited and enable non-GP providers to run practices.

Practices can partly mitigate the risk of closure in the first place by putting in place succession arrangements, with a merger being one way of achieving this.

Financial considerations
The financial benefits of operating as a larger organisation are likely to be one of the prime motivations for a merger. However, it is not necessarily the case that a merger will bring the expected financial rewards.

It is crucial that the merging practices take expert financial and accounting advice about the likely financial consequences of a merger to ensure that it is financially viable.

The costs of the merger itself will need to be taken into account, alongside any potential financial benefits. These will include legal and accountancy costs as well as the costs of attending to various practical matters and, possibly, redundancy costs.

Consideration will need to be given to the merged partnership’s banking facilities and loan finance arrangements.

Contractual considerations
In some cases, it may be possible to negotiate a single merged primary care contract. Where this is not possible, practices can still merge at an operational level and run two or more contracts.

In the case of GMS, the partnership changes must be notified to NHS England in order for the contract to continue with the merged partnership. This involves submitting notices regarding the partnership changes at the relevant time as required by the GMS contract regulations.

Provided the notices satisfy the relevant regulatory requirements and that all the partners are eligible to hold a GMS contract, it should be relatively straightforward to achieve the required contract changes to reflect the structure of the merged practice.

It is worth taking specialist legal advice to ensure that the notices comply with the relevant regulatory requirements.

The situation is less straightforward in the case of PMS where the agreement regulations do not set out a process for partnership changes and the consent of NHS England is needed to vary the agreement to reflect these changes.

Another option is for PMS practices to exercise their right to a GMS contract in place of their PMS agreement and to then achieve the relevant contract changes by following the GMS contract regulation procedure. The advice of a specialist medical accountant and solicitor should be obtained before pursuing this option.

If the practices hold other contracts to provide services which it is intended will be transferred to the merged partnership, they will need to check the contract terms to ascertain whether the contract can be assigned to or novated into the merged partnership, or whether the contract permits the original contract holder to sub-contract the work to the merged partnership.

There will be a host of other contracts which the individual practices hold with suppliers and so on.

Arrangements will need to be made to transfer contracts to the merged partnership or they will have to be terminated. In some cases there may be financial penalties for early termination.

The practices will need to check the terms of each contract in order to ascertain the requirements in each case.

Regulatory considerations
The merged partnership will need to be registered with the Care Quality Commission (CQC) and the registrations of the original practices cancelled.

Where the merger is to be achieved by one practice continuing and the other practice or practices ceasing to trade, the registration of the continuing practice should be amended to include the additional partners and, if applicable, locations.

Similarly, arrangements will need to made, if applicable, for registration of the merged practice with the Information Commissioner’s Office, Her Majesty’s Revenue and Customs, and other relevant authorities.

Premises
If it is expected that the merged partnership will cease to use any premises used for NHS services by the original practices, or if the merged partnership is intending to relocate to new premises, the approval of NHS England will be needed for these changes.

If the merged partnership will continue to use the premises of the merging practices, steps will need to be taken to ensure that premises are brought into the ownership of the merged partnership or that the merged partnership acquires the necessary rights to occupy and use the premises required to carry out its work.

If any of the premises are leased or subject to a mortgage, consent of the landlord and/or mortgagee are likely to be needed and, if the merged partnership is taking out a loan, the lender’s requirements will also need to be addressed. The advice of a property lawyer will be needed to ensure that the various requirements are met.

Staffing
The Transfer of Undertakings (Protection of Employment) (TUPE) Regulations are likely to apply when two partnerships merge.

The TUPE Regulations require employers to inform employees when there is a transfer of their business and, if the transfer is likely to result in material changes to the employees’ terms and conditions, consult with them about these matters.

Changes to terms and/or dismissals in connection with the merger will be treated by an Employment Tribunal as automatically unfair except in certain circumstances.

Changes to staff terms and conditions purely to bring the terms and conditions of staff from the merging practices in line with each other are susceptible to challenge, as are dismissals, unless there is a genuine redundancy situation which necessitates the changes.

The merging practices will need to work out their staffing requirements and, if it is anticipated that material changes in terms and conditions or redundancies will be needed, seek advice in order to mitigate the risk of claims.

Other practical matters
There are a host of other matters that will need to be addressed which are beyond the scope of this article. These include:

• Agreeing a name for the merged practice
• Changing the practice stationery, literature and website
• Harmonising IT, office systems and human resources policies and procedures
• Harmonising financial and accounting practices and agreeing an accounting reference date (which might in some circumstances have tax consequences)
• Agreeing on which suppliers to use
• Opening bank accounts for the merged practice and ensuring that receipts and outgoings are correctly apportioned between the merging practices and the merged practice.
• Appointing accountants and lawyers to assist with the merger and advise the merged partnership on an ongoing basis
• Agreeing a new partnership agreement for the merged partnership

Merger control rules
GP practices might be unaware that they, like other businesses, are subject to laws aimed at preventing anti-competitive activity.

The Competition and Markets Authority (CMA) has jurisdiction to investigate mergers that meet certain turnover or market share thresholds, to establish whether they are likely to restrict competition.

The CMA also has powers, in limited circumstances, to require a completed merger to be unpicked.

Although most small-scale GP practice mergers are unlikely to breach the relevant thresholds, it would be sensible to take advice where a merger involves one or more larger practices, to identify or rule out any merger control issues.

Relations between partners
The importance of relationships in GP partnerships should not be underestimated. If a merger is to work, the partners have to be able to get along. This does not mean that they have to be best friends, but they do have to be able to agree a framework for how they will work together and agree to adhere to that.

The process of negotiating terms for a partnership agreement for the merged practice can be helpful in gauging whether the partners have enough common ground to make the merger work.

If they cannot even agree these terms, it may be better for all concerned to cut their losses and walk away.

* For further information on the issues raised by this article, please contact Alison Oliver.

A version of this article first appeared in the publication AISMA Newsline.