Setting up an in-practice pharmacy
A legal guide to starting a new practice business venture
Whilst most community pharmacies are located in secondary retail space not far from doctors' surgeries, a growing number are now to be found in GP surgeries. The obvious synergy between pharmacies and GP surgeries has driven this trend but it is tempered by practical considerations and implications which need careful consideration before interested GPs take the plunge.
The current situation has come about both through legislative change and like-minded people from both professions working together in an entrepreneurial spirit which has the best interests of the patients at heart.
Some in-practice pharmacies are owned by pharmacists, some are owned by GPs and some take the form of a joint venture between the GPs and one or more pharmacists. The relationship between the two may be as complicated as a joint venture or as simple as landlord and tenant, with the GPs as landlord and the pharmacist as the tenant, perhaps under a lease that has rental payments linked to the turnover of the pharmacy.
The case for setting up a pharmacy
Some dispensing GPs fear that they will suffer profit reductions from their dispensary operations, for example if dispensing by doctors should be abolished at some point in the future. Having a pharmacy on site is seen as a way to plug the gap and enhance profitability, future proofing the practice. The opportunity to be in close and regular contact with your pharmacist is also an attractive prospect. Patient satisfaction across the board can be closely monitored and the flow of information between professions (for example, the availability, or lack thereof, of certain branded medicines), providing significant advantages to all concerned.
BSo far, so good, but before GPs go any further, it is critical that a full viability study is conducted in order to make sure that an in-practice pharmacy is viable. Setting up an in-practice pharmacy, in whatever form, requires a significant up front financial investment. GPs will need to present to their funders a well thought out business plan, including cash flow forecasts, full set up costs, projected profit and loss accounts and balance sheet.
One of the biggest costs, other than the drugs themselves, is that of the superintendent pharmacist. This is a significant point: it is critical that a superintendent pharmacist (without which the pharmacy cannot legally operate) is appointed, who the GPs respect and with whom the GPs believe they can develop an excellent working relationship, akin to a partnership. Without regular dialogue and sharing of information, the in-practice pharmacy will struggle to succeed.
The statutory, legal and insurance requirements
With the advent of the Health and Social Care Act, significant reform to this area is expected. However, for the present time, a pharmacy contract must be obtained from the PCT. A common way of achieving this is acquiring the business and assets of an existing, nearby pharmacy and applying for minor relocation consent to trade from the GP surgery. However, GPs will need to take specialist advice about the availability of a pharmacy contract and how to negotiate their way through the laws, regulations and practices surrounding obtaining a pharmacy contract.
Minor relocation means a distance of less than 500 metres (but watch out for disability issues – does the ramp access mean that a disabled person may have to travel further than 500 metres?). Following the granting of minor relocation consent, the pharmacy contract would be managed under a management agreement from the date of the opening of the pharmacy at the new premises. The GPs, through whichever tax efficient structure is recommended (i.e. private limited company, limited liability partnership, etc) would then apply for change of ownership consent from the PCT. Subject to passing the fitness to practice requirements, this should occur after around 30 days from the date of making the application, although there are delays occurring at this time.
There are other ways of achieving an in-practice pharmacy that do not require a business (or sometimes company) acquisition but they can be difficult to achieve. Specialist legal, accountants and consultants' advice should be taken as to which method is best suited to the GPs.
The pharmacy practice will need the usual public liability insurance, employer's liability insurance and pharmacover policy, which the NPA can provide as standard.
How to adapt your premises
The GPs will need to identify appropriate space in or adjacent to their surgery premises that will house the pharmacy. This might involve building an extension, acquiring additional space from a neighbour or restructuring the surgery to create a suitable area. GPs will need at least 60 square metres of space to work with and, depending on the nature of the pharmacy, GPs might need up to double that. GPs should take the advice of a consultant who is experienced in setting up pharmacies in GP surgeries before committing to decisions about premises, as a mistake will be costly and difficult to put right at a later stage.
If GPs acquire new premises to house a pharmacy, the usual checks should be made before the premises are acquired, including checking the seller's title, raising pertinent enquiries of the seller and carrying out conveyancing searches to ensure that everything is in order. A survey should also be carried out to check that the condition of the property is as expected and that there will be no unexpected repair costs arising at a later date. If the additional premises are leasehold rather than freehold, there are additional checks that will need to be carried out as the premises will be subject to obligations and liabilities that the GPs, as tenants, will be required to comply with. The GPs should obtain legal advice before acquiring any new premises.
Building regulations will need to be observed in relation to any works that need to be carried out and depending on the nature of the works, planning consent might be required. If neighbouring premises are acquired to house the pharmacy, GPs will need to consider if an application to the local planning authority for change of use will be required. If change of use is required, GPs should ensure before they buy that the local authority will not object.
Issues such as fire regulations, disabled access and security also require careful thought at an early stage as they will impact on the configuration, the shopfit and ultimately the fitness for purpose of the pharmacy. Energy efficiency is another consideration. Creating the pharmacy unit might prove to be an opportunity to retrofit eco measures in the surgery as a whole.
It is easy for costs to run away on any building project. GPs must make sure they assess a realistic budget before they start and that their funding is sufficient to cover it (plus a 10% contingency). The cash flow projections must take account of any required stage payments. Keep revisiting the budget as the project progresses so that costs are not allowed to escalate unchecked.
If the existing premises are leasehold, it is likely that landlord's consent to the creation of the pharmacy will be required, both in terms of any works to be carried out and in relation to the new use. GPs will probably also need consent for signage for the pharmacy.
Whether or not your premises are leasehold, if there is a mortgage secured over them the consent of the lender will be necessary. This will depend on the wording of the funding documentation. Consent in principle should be obtained at an early stage.
Ingrid Saffin is Head of Healthcare and Phil Walton is a Partner at Mundays LLP