Breaking Up is Hard to Do

Graeme N. Burn, Senior Partner of Burn & Company, Solicitors, is the current Chairman of The Association of Specialist Providers to Dentists (ASPD).

After fifty eight years of what most dental practitioners regarded as a satisfactory relationship with the NHS, and latterly the PCTs, the provisions of the 2006 NHS contract presented a shock to dentists nationwide.

For some it was their UDA requirement, but for all who took advice after reading the small print it was the sudden awareness that the contracting PCT had effectively become a stakeholder in their dental practice, whilst they themselves had become merely contractors and providers.

Practice owners now need to consider the impact of this new relationship, in effect a marriage with the PCT, on their ability to sell their practices with the added value of what has traditionally been regarded as goodwill.

When that time comes, is their shotgun wedding to the PCT last April likely to degenerate into an expensive, acrimonious divorce with Hollywood style wrangles between the parties reported in the trade and local press, or will it be a civilised parting of the ways which benefits both parties?

For all practical purposes the NHS dentist, now the ‘contractor,’ is no longer empowered to transfer patient lists to a new owner. The last word on the transference of the work of an NHS practice, and consequently the realisation of any sale proceeds which would previously have been described as goodwill, rests with the PCT.

Under the contract the dentist as ‘contractor’ is obliged to give formal notice to the PCT of an intention to terminate the contract, or of any change in the status of the contractor, for example the admission to the practice of a new partner, incorporation or sale to a third party. Experience to date suggests that the reaction of the PCT to any proposed change is likely to be unpredictable.

PCTs across England and Wales have shown no signs of adopting a common stance towards changes in the contractor’s status or ownership. It is clear, however, that transfers of practice ownership are increasingly being exploited as opportunities to renegotiate the contract and UDA values with the proposed new owners before they succeed to the practice, always assuming they are seen as acceptable partners for the PCT, or even to open the contract to tender from other local practices, or indeed national corporates. In some instances, of course, the loss of a GDS contract or PDS agreement could be a catastrophic blow to a practice’s viability. Rumours abound within the industry and the trade press of bidders who failed to win either original or re-offered contracts for reasons varying from the trivial to outright corruption.

So how should a practice owner proceed with the sale of an NHS dependent practice so as to ensure acknowledgment of the goodwill, possibly engendered over many years, not to mention the investment in property and equipment?

The widely experienced members of the ASPD suggest that there are effectively only two ways to safeguard the value of the practice’s goodwill, neither of which is entirely satisfactory –

  1. Approach the PCT at an early stage and then agree a sale contract with the prospective purchaser which is conditional on their being granted a new contract on substantially similar, if not improved terms to the current contract, or else –
  2. Accept the buyer into the practice as a partner at the contract stage and upon completion of the sale give notice to the PCT of the retirement of the original contractor.

The difficulty with option 1 above is there is no guarantee of the PCT’s response, while option 2 exposes both the buyer and seller to potentially disadvantageous legal and financial liabilities to the PCT during and after the period of transfer.

In addition it must be appreciated that under the standard terms of the contract the PCT retains the right to nullify a sale or any attempted continuation of the contract if :

“the change (of circumstances)…. is likely to have a serious adverse impact on the ability of the contractor or the PCT to perform its objectives under the contract…”

NHS practice owners seeking to sell would be well advised to apprise the PCT of their intention at the earliest opportunity, even before accepting a offer or marketing the business. Although the reaction may vary from Trust to Trust, which those in the industry it seems must live with pro tem as a fact of life and which is bound to cause unease in some circumstances, it’s also true that no PCT can have any interest in wilfully disrupting dental services.

In spite of the difficulties introduced by the new contract and the power it confers on the PCT, in most cases buyers receive the assurances they need to proceed with a purchase and sales are being satisfactorily concluded. Even so, sellers need to be aware of the possible pitfalls, and that the balance of power in respect of goodwill within the contract is now beyond their control.

For further information on the ASPD, its members and services, call 0800 458 6773.

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