There has been no shortage of (overdue) investment in primary care facilities in the last decade, with excellent new facilities opening regularly across the country powered by investment schemes such as LIFT.
That money has now dramatically tightened up as part of wider public spending cuts, and GPs now have to look far harder for to access funding if they want to develop their premises. In that context, this guide is written mostly for those looking for private funding (public funding may still be available and of course this should be explored) and this involves a different set of skills for a practice.
The obvious part of seeking private funding may appear to be to jump to Step 6, ‘Speak to your funders’, but without working through the previous five steps, that conversation is likely to be a short and tough one.
1. Get the right people in place
Once you’ve decided that you want to get investment to develop your premises, you need to choose one person to lead the project from the practice – this may be a partner with a particular interest in development, the practice manager or someone brought in specially. The other partners and members of the team should of course be involved throughout and there needs to be a regular forum for them to provide their input, but one person with a clear lead will help enormously. Patients should also be involved from the early stages – they will provide excellent input on what is needed and what is valued, and act as a free source of customer feedback.
Next, look to build your wider team by finding out who the regional firms specialising in medical buildings are – architects, surveyors, project managers and builders.
Don’t be afraid to speak to a good number of firms and to get a range of ideas and quotes. This is an excellent stage to get some free advice, and you will need to come back to this group regularly. Whilst doing this also make notes on the other surgeries in the area, and speak to other practices with facilities that match what you’re trying to do; what have they done well, what do they regret, how would they do things differently?
This is also a good time to speak to your accountant, and potentially a business advisor – including advising with tax planning, such as efficient financial vehicles and maximising benefits from capital allowances.
Attend some of the conferences (private and public) on primary care premises – not all the content will be aimed at GPs looking to develop premises, but the variety of experience will be invaluable.
And of course speak to your PCT and CCG – find out what will they support in terms of rent re-imbursement, and what will you need to cover from other sources of income. Any group funding you will want to know the strength of your income or their rental covenant.
2. Be clear on your aims
Think through how you can maximise the space you have already, and what space you really need developing; the cost of refitting a poorly used space will be far less than any new build. Then be very clear on what the strategy for you practice is, and ensure your development plans are an output of this. The surgery may be bursting at the seems but building a business plan around “needing more space” will get you to a far less satisfactory development than one that is specific around which future needs of your patients and your team you are developing for.
Use your network of contacts to help advise you on what your development needs to look like. Generic building regulations have reasonably high standards of energy efficiency, but look for likely future requirements with schemes such as BREEAM. This can also be an opportunity – grants for ecopower generation are harder to come by, but energy efficient buildings can be part of the business case through lower running costs. Specialist medical architects should help ensure you have full access compliance with the Disability Discrimination Act / Equality Act and (evolving) CQC requirements.
Do allow for flexibility – if you’re planning on developing a single storey extension, consider the costs of putting foundations and accessibility options for at least a second floor (as planning allows), and potentially building that extra floor but leaving it unfinished. Many of the costs of development (planning, architecture, plant hire) are fixed irrespective of the number of floors, and building in contingency now may save a fortune on future development costs when your practice inevitably evolves further down the line. This may even involve planning on purchasing additional adjacent land as and when it becomes available.
3. Think of all the opportunities
Funders will actually often find it easier to identify with significant projects that make a real difference and are worth their time and money, rather than minor extensions, refurbishments and developments.
By bringing in potential partners you should be able to help with either funding or covering the cost of the finance. Pharmacies are the obvious choice for larger practices and can provide a strong rental covenant for some of the space or may even some direct funding for the development, though there a licensing challenges (explained very well in other articles).
Also look further afield – local acute providers may be interested in partnering on space and facilities (foundation trusts may even provide funding).
Other professions closely aligned to general practice may be interested in the footfall that your patients represent. Dentists, chiropractors, convenience stores and even hairdressers have co-located with GP surgeries – though the further from patient care you get, the higher the likely risk.
4. Think of the risks
GP practices have historically been risk-free compared to most other businesses, but as partners look for diversified sources of income, so the risk increases. Be very careful of ‘build it and they will come’ optimism. As local competition intensifies and patient choice of practices increases this could end up a costly mistake.
As best possible, think through how your local population is evolving population, and what the future needs and demand from the population will look like – you can access local demographic information from your PCT or council. Also think about the evolution of healthcare, and whether any services may be at risk in the future and that you’re not building facilities for services with a limited shelf life.
5. Write a business plan
Business plans are a great discipline for testing how well you’ve thought through each assumption you’re making in your planning. Think through how confident you are in each variable you’ve assumed, and test the sensitivity – what happens if demand increases by 5% annually? 10%? More?
A good plan will include all the elements discussed above, plus the basics such as cash-flows (usually at least 10 years), detailed build costs, income plans, risk analysis etc. There are plenty of excellent books that can help with structuring business plans.
Get your accountant to review the numbers and challenge you on them, and any friends of the practice experienced with business cases (look for help amongst your more involved patients).
A local medical valuer or rent review surveyor should also be able to help you with some of the assumptions on the build costs and what the development will be worth. This will not only inform your business plan, but also provide vital reassurance to your funder.
6. Meet your funders
Work out where you’re going to get funding – this might seem predetermined by your tenancy / freeholder status, but this may also be an opportunity to test what you want to do with the ownership of the property. If the PCT is holding back your development plans, is it time to make them an offer for the site? Is the burden of equity in the premises discouraging new partners joining the practice? Is looking after the property an unnecessary distraction and financial risk? Now is the right time to consider the right approach for your premises as a whole. That said, the below assumes you are comfortable with existing ownership structure (or have no alternative).
If the partners own the property:
A loan with a bank specialising in medical developments is the obvious choice for funding (e.g. Aviva, Santander and RBS have history in GP practices, though are by no means the only lenders). The easiest conversation with the greatest chance of success will be your existing bank – all banks are nervous about lending money to customers they are not familiar with, and some will outright not lend to customers whose main business accounts are elsewhere.
If the bank is looking to loan, then the decision will come down to the strength and quality of the business plan, plus a suitable level of commitment from the partners – in the form of equity commitment. Most banks will not loan higher than 80% loan-to-value (i.e. require a 20% equity stake from the practice), and more attractive rates will be available with higher deposits. Their involvement in the actual development will be hands-off, hence the importance of the business plan to them.
If the PCT owns the property:
A much more difficult conversation for most areas, with PCT funding severely constrained and the healthcare reforms causing uncertainty that takes focus away from healthcare development. The most likely option is a sale and leaseback development; if you can find a suitable investment partner the PCT may welcome releasing the capital, though getting a firm decision will still be challenging at the moment. In a few cases there may be non-healthcare public funding available, for example if you make a case for growing employment in key regeneration areas.
If a private landlord owns the property:
This will really come down to the size and strategy of the landlord – most of the institutional primary care landlords like ourselves will be very open to conversations about further developments and genuinely like GP tenants who have initiatives and the appetite for practice development. Smaller private landlords may have similar enthusiasm but are probably more capital constrained. In both cases, the landlord is almost certainly going to want a clear commitment from the practice if they are to invest in developing the surgery – this will generally come in the form of an extension to the lease, so be clear with them on your practice succession planning. Larger private landlords are likely to have experienced teams that will help with a lot of the development, and these should absolutely form part of your team in Step 1 (though you should still take independent advice).
Remember: Prepare for the unplanned
Assuming all your planning has been well thought through, you’ve got the right team in place and you’ve secured your funding, you should now be able to sit back and relax. This unfortunately won’t happen, and suffice to say that you should provide a structure to monitor progress with your project manager, allow yourself the time to understand the progress of the project and some leeway for changes that need to be made.
Many of the more technical building decisions can be made without your intervention, but even with exceptional planning there will be a plethora of choices and compromises to make along the way. But involvement in the choices should make the finished development satisfying.
Jonathan Knight is a partner at Bolt Asset Management, a firm that manages and develops a portfolio of over 150 primary care facilities across the UK.