Many primary care networks around the country have either formed corporate vehicles or are in the process of doing so. In this article, specialist primary care partner Alison Oliver and legal director Ruth Griffiths explore what PCN incorporation involves, why PCNs might want to consider this model, how to go about putting a corporate structure in place and who the key players are in the process.
What is PCN incorporation?
The first point to note is that the term “PCN incorporation” is used loosely and rarely means that the PCN itself becomes incorporated.
Incorporating a business of any kind generally involves forming a corporate vehicle and transferring the assets, staff and contracts of that business into the corporate vehicle. In the case of a PCN, the network contract directed enhanced service (DES contract) is held by individual practices as an “add on” to their core GMS/PMS/APMS contracts. The PCN does not exist as an entity or hold the DES contract in its own right and so is not in a position to incorporate the whole business of the PCN into a corporate vehicle unless all the core network practices in a PCN merge into a single practice.
What PCN incorporation therefore tends to mean in practical terms is that the PCN practices form a corporate vehicle which sits alongside the network. The practices in the network continue to hold the DES contract and retain ultimate responsibility for its delivery, but delegate certain functions to the corporate vehicle.
The functions taken on by PCN corporate vehicles vary between PCNs. At one end of the spectrum, a PCN corporate vehicle might just provide “back office” functions, such as administrative support for the PCN activities. At the other end of the spectrum, the practice could sub-contract responsibility for all the clinical services delivered under the DES contract to the corporate vehicle. In between there are various hybrid scenarios where the corporate vehicle performs a combination of functions on behalf of the network.
Why incorporate?
As PCNs are not legal entities, they cannot hold contracts, employ staff or own property. This means that where there is no corporate model, it is the practices themselves that have to enter these arrangements on behalf of the network. This usually involves either a single lead practice employing staff and hosting funds on behalf of the other practices or these responsibilities being shared between different practices.
As PCN workforce and liabilities grow, many practices are concerned this model is unsustainable, posing too great a risk to their individual practices.
As a corporate vehicle has its own legal personality separate from its members, it can enter contracts in its own right, own property and – crucially – it bears its own liabilities. By delegating certain responsibilities to a corporate vehicle – in particular the responsibility for employment of network staff – the network practices are able to pass on at least part of their liability.
If set up properly, a corporate vehicle can be a useful tool in managing PCN activity, funding and VAT on supplies between network members.
How do we go about it?
The first step is to consider what functions you want the corporate vehicle to perform. We are aware of some PCNs that have formed companies which have then remained dormant because they did not have a clear vision as to why they needed a company or what it would be used for. The form should always follow the function.
We would recommend speaking to your accountants about how you envisage using the corporate structure so that they can advise on the tax and accounting implications and benefits of different models.
Once you have identified a need for a corporate structure, you will need to settle on the particular type of corporate vehicle to adopt. There are a number of different types of corporate structure, but the most commonly adopted model for PCNs is the company limited by shares. This is registered at Companies House with a unique name and registration number.
The constitution of the company (the articles of association) will need to be drafted to align with your network governance structure, and you may need to make revisions to your network agreement schedules to reflect the corporate model and how this relates to the wider network. It would be usual for the company to become an associate member of the network and a party to the network agreement.
Depending on the particular functions that you want the company to perform, various other practical matters will need to be addressed, including:
- Staff transfers: if the company will employ staff currently employed by network practices (e.g. ARRS roles), you will need to manage the transfer of staff in accordance with the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE).
- Employment business requirements: if the company employs PCN staff and then supplies them to the practices, you need to consider whether the company is acting as an employment business. This might apply where the company doesn’t exercise predominant control over what the staff do on a day-to-day basis. If that is the case, the company must provide the staff member with certain key information and have an agreement with the staff member about certain matters such as their notice period. These requirements are not particularly onerous, but should be considered nonetheless.
- CQC registration: if the company is performing any activities which are regulated by the Care Quality Commission (for example if it is performing clinical services as a sub-contractor of the network practices) then it will need its own registration.
- Pensions access: as the company is unlikely to have automatic status as an NHS pensions employing authority (because it would have to hold a qualifying NHS contract to obtain this status), it will need to apply to the NHS Business Services Authority for special access. This is currently time limited but the government has indicated that it is considering arrangements to confer permanent NHS pension access for staff employed by companies supporting DES contract delivery.
- Sub-contracting requirements: there are provisions in the DES contract and the practices’ core contracts which apply if the practices are sub-contracting delivery of services. Essentially, this means that the commissioner must be notified and the commissioner has the right to object or withhold consent in certain circumstances. The terms and conditions of sub-contracting or delegation of functions from the practices to the company should be documented to put the arrangement on formal terms – this might be through a sub-contract, service level agreement or via the network agreement, depending on the type of functions being delegated or sub-contracted.
| Different structural models | |||
| Existing Primary Care Network | Limited company provides back office/employment support | Practices subcontract some DES services to the limited company | Full-service limited company |
| Core Network Practices hold core contractsStaff employed by one of more Core Network Practice(s)Each Core Network Practice delivers its share of services under the DES | Core Network Practices hold core contractsLimited company employs staff and supplies to Core Network Practices “Employment business” (section 13 EEA 1973) | Core Network Practices subcontract some DES obligations to the limited companyDES and core contract subcontracting requirements applyCQC registration required if any regulated activities contracted | Core Network Practices subcontract all DES obligations to the limited companyDES and core contract subcontracting requirements applyCQC registration required |
| Key documentationNetwork Agreement and Schedules | Key documentation+ Service level agreement+ Articles of association | Key documentation+ Subcontract | Key documentation+ Subcontract |
Who needs to be involved?
The core network practices in the PCN will need to agree to form a company. Typically, each practice would own one or more shares in the company, either directly (in the case of a sole practitioner or company-operated practice) or via a nominee partner (in the case of a partnership – because a partnership is not a legal entity capable of owning shares).
In a company, the ownership and management are separate. While the shareholders own the company, there is a separate board of directors which is responsible for the day-to-day management of the company. In most PCNs, each practice would also nominate a director to the board of the company. Usually, it would be the existing PCN board members who are appointed to the board of the company in order to ensure continuity and oversight of the company and network. Where all practices are represented on the board of directors, the board would usually have relative freedom to exercise its management powers.
In larger PCNs, rather than have every practice represented on the board of directors (which could be unwieldy) you might instead agree a process for selecting and appointing a smaller board, but reserve certain more significant decision to be taken by the shareholders.
The governance and management structure of the PCN and the company can be aligned to avoid unnecessary duplication of meetings and maximise clinical leadership time.
Key takeaways:
- A company structure can be a useful means of managing PCN activity, liabilities and finances.
- The core network practices should agree the functions and purpose of the company – form should follow function.
- You should seek your accountant’s advice on the different models as there are tax and accounting implications.
- The constitution of the company should be aligned with the network agreement.
- Depending on the functions of the company, it might need to apply for NHS pensions access, consider regulations applicable to employment business and / or obtain CQC registration.
We are frequently asked to advise on corporate structures for PCNs and how those might be used. This case study illustrates just one example of the way in which a PCN can use a corporate vehicle to support its work. This was initially published as part of an article on PCN incorporation.
For further information, please contact:
Alison Oliver, Partner, Hill Dickinson
alison.oliver@hilldickinson.com
