It’s no secret that GPs operate in a highly regulated and politically sensitive environment which has just recently been reignited with accusations levelled by Scottish Labour over the current GP recruitment crisis in Scotland.
Although often seen as the poorer cousin, for the wider public general practice is our main connection with the NHS. This can be complex and unwieldy area for GPs where the support of lawyers across a whole range of issues to ensure its smooth running. It takes five years after obtaining a first medical degree to fully train a GP and in that time only a negligible amount of that training ever focuses on the business management skills required to run a successful practice. While most hire practice managers to run the business, having a deeper insight into practice management – and in particular the economics of this – is always beneficial for GPs.
The financing of a general practice, comprised of multiple revenue streams which sustain the practice and pay its staff and GP partner incomes is increasingly becoming an aspiration rather than a given. This includes in depth understanding for funding the property costs, an important part of any practice’s income.
In simple terms GP practices are expected to provide suitable accommodation for the provision of the primary care services they are contracted to provide, whether a premises owned by some or all of its partners, one that is leased from third parties or one that is a health board owned premises such as a health centre. In return for providing such accommodation the practice is entitled to be paid by the health board or, if it is an owner-occupied premises, be reimbursed for this investment through what is known as a notional rent payment.
It’s important that premises-owning practices are aware of this distinction as they are entitled to this payment which health boards must provide if they meet the qualifying criteria. What can make this a complex area for GPs and those managing their practices is that this criteria is not always straightforward. While, in practice, as long as the premises are fit for purpose they should qualify, the approval of the level of notional rent can also take into account the health board’s budgetary targets.
The amount payable by the board is the current market rental value of a premises, as determined by the existing rules governing GP practices known as premises directions. These set out certain assumptions as to the terms of the notional lease for which rent is to be assessed depending on the terms of the lease. A District Valuer then sets the level of notional rent which is normally reviewed on a three yearly basis but this can be challenged by GPs and practice managers if they don’t believe it is fair.
While on one hand notional rent is a technical area for GP practices, concerns around property responsibilities are an important issue affecting GP recruitment. In the past there has been an expectation that incoming partners would “buy out” outgoing colleagues – this has typically involved purchasing a share in the practice property, taking over a share of practice loans and taking on lease responsibilities. However, when looking at joining a practice, new partners are increasingly casting a critical eye over the risks involved and are more willing than ever to base their decision to join on issues surrounding the financial management of a practice.
Under current funding arrangements, the issue of rent reimbursement for premises is therefore an important one as it represents a key source of revenue for practices as, without it, some would not be viable. An incoming partner considering joining a practice must therefore ask whether the rent reimbursement is sufficient inducement to take on the property liabilities which go with being a partner.
Given the vital role that GP practices play in our communities it is crucial they are run as efficiently as possible – a process where specialist legal practitioners can add real value – and able to access all entitled revenues. For those practices which have made a significant investment in purchasing their premises, it is only right they receive their fair share of notional rent as it could be an important aspect of the revenue stream which ensures its longer term stability.
Davidson Chalmers is organising a free seminar on 23rd September 2015 to bring together legal, finance and property experts to give practical advice and tips to GPs and Practice Managers regarding their premises. If you would like more details on the just click here.
This article first appeared in The Scotsman on 27th July 2015.
The matter in this publication is based on our current understanding of the law. The information provides only an overview of the law in force at the date hereof and has been produced for general information purposes only. Professional advice should always be sought before taking any action in reliance of the information. Accordingly, Davidson Chalmers LLP does not take any responsibility for losses incurred by any person through acting or failing to act on the basis of anything contained in this publication.