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At the heart of general practice since 1960

Can I avoid being stung after joining a federation?

Accountant Bob Senior advises GPs to consider their financial exposure before joining a federation  

As highlighted by the recent story of a failed federation that led to GPs losing £20,000, you need to understand your financial obligations and exposures when federating. Here is some advice that can help lessen the risks.

Limited companies can reduce risk

A federation can just be a loose association of practices, in effect a large partnership, with the resulting liability for the federation’s debts. To protect against this risk, you should consider restructuring the federation as a limited company. However, participating practices will need to contribute some funding to set up the company, which they will lose if the company never manages to operate profitably.

Directors of the company need to take their responsibilities seriously, as they put themselves at serious financial risk if they are negligent. Directors are normally elected from the member practices, and are often partners or practice managers.

GPs who take up a directorship should remember that limited liability does not absolve them of their duties of care. Even those who have taken out a directors and officers insurance policy will not be covered for being negligent in their responsibilities and could be held financially accountable for losses and banned from being a director for a period.

Make sure the federation’s contracts cover costs

If you are not a director, the only risk you face is doing work for the federation that you don’t get paid for. For example, when a federation wins a contract, it may then subcontract to individual practices in the federation. The federation invoices the commissioner of the service and is in turn invoiced by the subcontracted practices for the delivery of the service. There should be a margin between what the commissioner is charged and what the practices are paid, for the federation’s running costs.

Problems arise if contracts are not renewed and the margins on remaining contracts are not sufficient to cover the federation’s running costs. If such a situation continues for too long and the federation ceases to trade, practices within the federation could find themselves saddled with several months of unpaid invoices.

In theory, this should not happen because the directors of a limited company have a legal obligation not to allow a company to continue to trade if it is unable to pay its debts in full. If the federation does find itself unable to pay its debts, the directors should plan a controlled close-down, probably taking advice from an insolvency practitioner.

But if the directors carry on regardless, the company will fail and the creditors can sue the directors personally for their losses. Negligence of directors, though, is often difficult to prove and you should not bank on it being successful.

Bob Senior is head of healthcare at RSM UK Tax and Accounting Limited and chairman of the Association of Independent Specialist Medical Accountants

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Readers' comments (6)

  • Who in their right mind would be a director!!!!

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  • If you look at the thin [reducing]profit margins on most NHS contracts, and the fact that CCGs have little contingency for "unexpected" costs that may arise for GP federations. It looks very unattractive to most GPs/Federations to take on these risks.
    Even the large experienced FT providers cannot make some of these community contracts work {Cambridge FT} and had to hand the contract back after 9 months as they had got their sums wrong. Golly Gosh, I did not go to medical school for 7 years so that some accountantcy firm could close me down for misplacing a decimal point!

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  • Answer to headline:

    NO, NO, NO!!!!!!

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  • While you all scream NO! No1 Remember those private companies like Virgin Health or even a neighbouring County with a formed federation. It has happened, not illusion-these are your competitors, and they will win the contract from you. Think, does each Practice have 50K to put a bid in and the time- more importantly if you are commissioning who are you most likely to take out a Contract with ? - a federation with 30 signed up Practices or a small and possibly on the verge of collapse three Partner Practice. There is no way it will be the sdmall individual Practices - truly "size matters"! The average cost to put a bid in is costing 50K? Sorry guys its federate or goodbye.

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  • Goodbye then RELP!

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  • Feb is a organisation form of Trading Business Organisation is designed to fail .Millions of pounds of NHS money given to CCGs for patients care wasted on paying accountants/lawyers /consultants to forms and sell it to gullible GP Partners and Practice Mangers.Result is a very top heavy organisation feeding on GP earnings,benefiting only the Directors and highly paid employees many of whom have never worked in Primary Care.Now that the risk which is faced by Directors it is likely that some of the doctors who learnt their financial lesson from the accountant who had been hired by CCG to sell the form of organisation will drop out leaving the Feds in the hands of Managers.What next?

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