General practice mergers: Look before you leap!

Kirsty Odell, Senior Solicitor at healthcare specialist law firm Hempsons, sets out some of the key considerations for any practice that is thinking of merging

Published in Practice Management July 2020

Many practices are looking at merging. The drivers may be because a practice is struggling with sustainability, others sucession planning, others that overheads need to be spread more widely.

For every practice which needs to merge there is an opportunity for those who are able to scale up effectively to take over a practice. For others there is a realisation that collaboration really is the future and the bigger the practice the more influence you will have with integrated care systems.

In each case there are many considerations to take into account before taking the leap. For practices to merge sucessfully, it is more than adding partners’ names onto a contract. You need to know eveything about the other practice and agree how you are going to operate in the future.

What is due diligence?

This is looking beyond the façade into the engine room. It highlights any possible liabilities which may emerge; such as employment issues, complaints, investigations, compliance and breaches of contract, as well as the accounts and profits of each practice.

Beyond the facts, there is the culture – do all of the partners have the same ethos and do they perform to the same standards and in a similar way? If not, how will that be managed? Matters unearthed during due diligence need to be dealt with in the legal agreements.

What documents should be entered into?

First, there needs to be some communication with NHS England/clinical commissioning group to vary the core contracts of the practices. The level of communication required will depend on the type of contracts of the practices and whether you intend to fully merge the contracts.

Second, a merger agreement is required. This states which and how assets are transferred, including practice premises, and what each party has to do for the merger to take place, such as pay off outstanding debts, or terminate contracts for unwanted equipment.

The merged partnership must enter into a partnership deed. Without a partnership deed in place, the new partnership would operate as a ‘partnership at will’ governed only by the Partnership Act 1890. This is the most unstable form of business relationship that exists. Having a partnership deed in place applies to all partnerships; not just those that have merged. However, where practices merge, they may have very different governing arrangements in place before the merger and will need to agree and record a new way of operating post merger in the partnership deed.

A declaration of trust may be required in respect of the new partnership’s premises as well. In all cases, practices need to communicate well ahead of a merger and learn how the practices operate, so that you truly envisage how you will work together after you leap.