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Sunday 25 September 2016
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Perils and pitfalls

Perils and pitfalls of partnerships

Entering into a partnership with colleagues can have many benefits to the practice, but there are also considerable risks

It is not so very long ago that every working GP was required to become a partner within their practice in order to qualify for the essential allowances funded by the NHS for the provision of services to patients. It was not possible for the basic practice allowance to be claimed at all unless the GP was a principal on the medical list of what was then the equivalent of the local commissioning body (known as the Family Health Services Authority).It is perfectly possible for a partnership to include non-GP partners who, given the essential requirement for management to keep things running, have as much of a part to play as the clinical partners. 

While in most professions, becoming a partner is regarded as the pinnacle of one’s career, the fact that it was something of an automatic ‘achievement’ caused many GPs to resent, rather than to relish, the prospect of partnership.

Following the introduction of the 2002 regulations, which revolutionised the basis of GP remuneration and introduced the concept of a practice-based contract, it soon became apparent that there simply wouldn’t be sufficient capacity (particularly in the financial context) for every GP to become a partner – which then caused concern about the lack of available partnership posts.

This concern will no doubt increase further as a result of the ever-greater economies that are required to ensure the NHS remains sustainable. These range from the slashing of personal medical service (PMS) budgets - which we have witnessed recently - to the loss of the minimum practice income guarantee (MPIG) in general medical service (GMS) contracts, which will be phased in over the next seven years. Add to this the increasing pressure that will arise from competition introduced from the private sector, the net profits available to be spread among partners will be become even thinner, which is likely to result in even fewer partnerships becoming available.

Should we be overly concerned at the lack of availability of partnerships posts? With the combination of the reduction in profitability, coupled with the increasing pressure on partners to ‘deliver’, alongside the exposure to liability which comes with being held out as a partner, some might already feel that the overall risks are too great. For others with a greater appetite for risk, that stage might not have been reached yet, but even they would be wise to keep their eyes firmly focused on the bottom line to ensure the ‘comfort’ they derive as a result of being a partner is not misplaced. 

Getting back to basics: the law

So what exactly is the risk that comes with being a partner? 

The bottom line is that any individual held out to the world at large as a partner ultimately carries “joint and several liability” for the partnership as a whole. As a traditional partnership (ie. one formed under the Partnership Act 1890) does not have any “independent corporate personality” (unlike a limited company or an limited liability partnership, either of which has its own corporate status), the 1890 partnership is made up of the partners “from time to time”.

In the event of a claim arising, those partners could be sued collectively – or any one partner could be sued individually, even if the ‘fault’ lies at the hand of another partner. The liability is ‘unlimited’ and extends beyond the assets of the business itself, to include the personal assets of each and every one of the partners. 

The ultimate intention is that each of the partners should have to share the liability in their pro-rata partnership shares, and so in the (somewhat unlikely) event of an individual partner being singled out, they could in turn seek indemnity from their other partners in their respective shareholdings. 

The principle behind this rule stems from the fact that under partnership law, partners are empowered to act as agents of each other. In other words, a third party is entitled to rely upon the word of any individual partner who, in turn, can commit to the partnership as a whole. 

Against this background it is clearly essential to ensure the “intentions of the partners” are set out clearly within a partnership deed, governing the partners’ duties to each other and identifying the extent of the authority provided to any individual partner on behalf of the partners collectively. If an individual partner breeches that authority, it should prevent them from being entitled to seek indemnity from their fellow partners in the event a claim arises.

Getting back to basics: the major risks

Of course, in day-to-day practice life, it is hopefully highly unlikely the partners would in reality be exposed to a serious claim. Perhaps the most likely reason for a significant claim would be as a result of a complaint by a patient leading to a claim for damages. In the vast majority of cases, such a claim would be covered by individual medical defence insurance. 

It should be noted however that medical defence organisations (MDOs) have considerably tightened up the rules governing the extent of the claims they will honour in recent years and it is essential to ensure the partnership checks regularly the extent of liability covered. In a recent case, one of the MDOs refused to renew a partner’s professional indemnity cover at the end of the year in which a claim had been met, with the result that the GP was forced to retire. 

Another area of exposure arises from claims made by members of staff, particularly on grounds of discrimination for which the cap has recently been lifted - so it is essential to ensure the practice not only sets out its polices and procedures for all to see, but that they are actually followed.

Other practical consequences

Setting aside the risk of a significant claim however, what are the other practical risks to which a partner could be exposed? Essentially, these fall into two areas:

  1. Liability for breech of a contract for services (ie. failure to deliver the services required under your GMS or PMS contract), resulting ultimately in the service of a termination notice).

  2. Financial loss caused, not through a catastrophic claim, but by the slow ‘drip drip’ erosion in profitability as a result of inadequate financial management.

Of course, while there may be the temptation to reduce the number of partners in order to retain a higher level of profitability per head, to do so imposes a greater burden upon the partners who remain, both to set in place proper procedures for the running of the business and to take ultimate responsibility for any losses which arise should it fail. It follows that if a partnership is reduced from, for example, five partners to two, those two partners will in some way have to accommodate the work that was previously undertaken by three others in addition. This will mean ensuring appropriate arrangements are in place for others, of sufficient seniority, to undertake the tasks, with suitable safeguards being put in place to ensure these are undertaken adequately.

The future

As mentioned above, additional pressures will be brought to bear as a result of the competitive environment in which GPs are now trading, particularly when compared with other providers. An alternative provider medical services (APMS) provider may for example be set up under a limited company where the base costs can be kept to a minimum, as their structure avoids the need to recompense partners with ‘super-profits’ (ie. profits which fall above the base cost of the provision of the service in question) resulting in the delivery of services more cost-effectively. 

GP partners will need to consider how best they can seek to achieve a similar model in order to be able to compete in the modern NHS world. This is bound to include the requirement to achieve greater economies of scale which inevitably will result in the creation of larger practices with fewer partners. 

The larger the business, the greater the need to ensure proper governance procedures are in place so that all the constituent parties are properly accountable. This can best be achieved through a partnership deed which establishes the terms of engagement and enables each individual member to understand the extent of their duties. 

It would be unwise however to believe a partnership deed is itself a panacea for a successful business, and if the partnership is to survive in these challenging times, it is essential there is both common ground and open dialogue amongst the members. 

If partnership is for you, be prepared to commit to it, to be able to ‘think outside the box’ and to be flexible and a good communicator, in order to place yourself in the strongest position in these challenging times.