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Will your partnership agreement need to be altered for GMS2?

GMS2 has brought into focus the need to have a robust partnership agreement ­ Daphne Robertson identifies areas of your agreement you may need to review

GMS2 is about capitalising on the 'skill mix' in your practice but with this comes greater scope for divergence of views on how the practice should be run. So first you should review your partnership agreement to see whether your day-to-day decision-making process is still appropriate.

For example, does it still make business sense that one partner can effectively 'block' a unanimous decision? Maybe a special majority vote of 75-80 per cent of the partners would better serve your purposes?

Partnership capital

Next look at the issue of partnership capital. Does your agreement make it clear which assets form partnership property ­ referred to in your agreement as 'partnership capital' ­ and which assets the individual partners own personally?

If any assets are 'off balance sheet', such as a GP limited company to ring-fence the surgery mortgage, is this clearly documented and do you understand the arrangement? Also, think about holding the benefit of any medical defence insurance proceeds as part of the partnership capital so the proceeds can be applied directly towards the practice in the event of a claim.

On the subject of partnership capital, think about holding the benefit of the PCO contract as partnership capital so an outgoing partner cannot claim any benefit in the PCO contract on his or her departure.

Insurance for change in liability

Under GMS2, patients are registered with the practice not with individual doctors and the PCO enters into a PCO contract with the practice. Have you considered taking out practice insurance to deal with this change in liability?

If you have admitted a non-clinical partner, or are thinking of doing so, then you would

be wise to explore the all-inclusive practice quotes that are presently on offer from the various medical defence organisations. While doctors currently secure 100 per cent indemnity insurance in respect of clinical claims, non-clinical partners will not be covered.

Payment of defence subscriptions

Who pays the medical defence subscriptions ­ the practice or the individual partners? Generally it is better to fund the subscriptions from the practice account in the first instance. You can always deduct the cost from the income profits of each partner at the year-end but at least you know the fees are paid and the insurance is in place.

Under-performing partners

The 'old' definitions of full-time partners, three-quarter-time partners and half-time partners no longer exist so it is crucial that your partnership agreement sets out the commitment of the partners, perhaps by reference to the number of sessions undertaken each week.

Utilising the 'skill mix' it is no longer necessary for all partners to be achieving parity within three years as under the Red Book regime which means that partners are not tied to equal profit shares. Should a 'star' partner who exceeds all his targets be rewarded with a 'bonus'?

Likewise should an under-performing partner or a partner on long-term sabbatical leave suffer a reduction in his/her drawings? So far, practices appear to be taking the view that the PCO targets are practice targets, but how long will this last?

On the subject of under-performing doctors, are your expulsion clauses up to date? Does the partnership agreement provide for the ability to suspend a partner while the partners explore how best to deal with the situation or before the partners exercise their expulsion rights?

'Green socks' clauses provide for an immediate expulsion without the establishment of any grounds. Under GMS1 such clauses were usually only recommended for practices of four or fewer partners due to the instability they can create. With GMS2, perhaps now it is time for all practices, no matter what size, to consider the inclusion of such a clause.

Voluntary or compulsory retirement

The PCO contract requires that practices must give six months' notice to the PCO to terminate the PCO contract. Note that a 'termination' under GMS2 is treated differently from a 'variation' of the PCO contract. The PCO contract does not necessarily terminate if a partner leaves the partnership because the contract is with the practice and not with any single individual.

But if a group of partners leave together then the practice is unlikely to be able to provide certain services and it will therefore find itself in breach of the PCO contract. Similarly practices that have no partnership agreement can be terminated without notice by one dissenting partner, which could also put the practice, including the dissenting partner, in breach of contract if the PCO contract services cease to be provided.

To avoid being sued ensure your partnership agreement has a clause restricting the number of partners that can retire at any one time, no matter how inflexible this may appear.

You can always relax the provision at a later date if appropriate by unanimous agreement. The temporary default provisions that the PCO may impose if a practice splits in this way may not be satisfactory and would undoubtedly result in loss of income for the continuing partners.

Phased quality payments

How are you going to deal with achievement payments paid to the practice after a partner has retired? On the 'accruals basis' of accounting which I see in most partnership agreements, whereby the achievement payments accrue evenly over the year in which they are earned, an under-performing partner is set to benefit financially if he/she is replaced in the same accounting period by a high-achieving partner whose efforts are largely responsible for, say, exceeding the aspiration goals.

Maybe in time the specialist medical accountants will suggest a fairer way of dealing with such apportionments but it is tricky because what if the partner was under-performing through illness? In the meantime, I come back to my suggestion for rewarding such a star partner with a compensatory bonus.

Conclusion

With the advent of GMS2 and practice budgets it is increasingly common for specialist medical solicitors to draft GMS2 and PMS partnership agreements for a fixed price. These legal costs ­ £800 to £2,000 would be a fair ball park figure ­ pale into insignificance when compared with the legal costs incurred in a partnership dispute where there is either no partnership agreement at all or the agreement is out of date.

Definitely don't fall into the trap of tinkering with the partnership agreement yourself unless you have specialist knowledge of the GMS2 regulations.

You should certainly review the following

decision-making processes in your

partnership agreement

 · Provision of additional and enhanced

services

 · Contracting out of additional services (on a temporary or permanent basis)

 · Opting into or out of health service body status

 · Signature of the PCO contract

 · Opting out of out-of-hours cover

 · Delegation of certain services to other third-party providers

 · Opting into PMS if you are GMS2

 · Opting back into GMS2 if you are PMS

Daphne Robertson is the founding partner of DR Solicitors, London

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