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Federating – a changing scene

by Andrew Lockhart-Mirams, Senior Partner Lockharts Solicitors

About 3 years ago, we had what might be described as the first wave of federating. It was quite clear that in order to meet the challenges posed by the Health and Social Care Act 2012, practices were going to have to group together in order to secure contracts which had previously been issued on an individual basis for what were then called ‘enhanced services’. Indeed, the position was potentially more damaging than the mere redeployment of contracting to CCG's, as approximately 10% of what might loosely be termed public-health contracting was transferred across to the responsibility of Local Authorities. A different approach was going to be needed to obtain this work. In theory the work transferred to local authorities had to be transferred with effect from 1 April 2013 but some "rollover" was allowed with the remainder of the work and CCG's did not have to immediately re-commission.

Perhaps not surprisingly the opportunities posed by the new legislation was seized upon by entrepreneurial doctors. Although this certainly did not apply across the country, provider entities were driven forward in many areas by 2 or 3 doctors in each area who could not only see the opportunities but also the dangers posed to their practices and other practices by not forming groups who could tender for the newly contracted work.

Sadly however in many areas, practitioners adopted a "wait-and-see" attitude; possibly assisted by the fact that a number of PCG did allow old PCT contracts to carry over, and thus there was no immediate threat to practice income.

Whilst this was happening, a number of world’s servers started writing about the benefits of practice mergers. Whilst the number of provider company formations fell away, there was a distinct increase in the number of Practices proposing to merge or at least work together to secure services such as backroom support for the sharing of administrative and/or clinical staff. It is probably the case however, that there will always be a limit to the number of practice mergers that will come about, and we have often asked the question as to why is there so much merger activity now when there was relatively little prior to 2013. Very possibly, the decline in real income values for practices following the peak in 2004/2005, added a little to the merger impetus; but never to any great extent.

Two years on from the start of the new legislation, it is fair to say that CCGs have a much better command of the situation and, without exception, have realised that there are substantial savings to be made by contracting the limited number of groups, say 2 or 3 in any one area, rather than with 30 or 40 or 50 separate practices. It was instructive to note that some 3 or 4 years ago, the Kent County Councils Social Services Department resolved to cut the number of supply contracts they offered from over 100 down to 20 or so. The principal reason that was given was to keep close eye on the costs of procurement, but it is also the case that there are considerable administrative costs to be saved by having to operate small number of contracts rather than individual contracts for every supplier in the area.

Because these savings are now being identified by CCGs, it appears that the present pressures to federate and form provider entities, more often than not in the form of share companies, are coming from CCGs themselves rather than from the entrepreneurs who started the first wave. Interestingly when we have been lecturing on the Federation formations and provider entities across the country, we started with audiences made up almost entirely of leading GPs and their practice managers. Now 80% or so of our audiences are made up of CCG staff who have been designated to push the federating agenda forward. An interesting side effect of CCGs wishing to control the agenda is their original approach, which the author believes is correct, of being able to support meetings of an educational nature were available to all practitioners in their area. However, not to support the formation of individual groups has moved a little so that some CCGs are at least offering what are described as grants to help groups develop their offering. It seems a little clearer as to whether this should be permitted expenditure and although it is clearly of assistance, there must be the possibility of a challenge to the use of CCGs’ funds in this way; challenges which could come from the larger commercial healthcare organisations wanting to secure some of the contracting opportunities – particularly in areas such as extended access or walk-in centres.

It is probably fair to say that it is anyone’s guess as to where federating will go next but in the last month or two, we have been asked on a number of occasions to advise on either enlarging existing federations or in effect “merging 2 or 3 or 4 together. There are a number of complex regulatory challenges that arise, but nothing that cannot be overcome.

The writer Andrew Lockhart-Mirams is the Senior Partner at Lockharts Solicitors and can be contacted directly at alm@lockharts.co.uk.

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