Hewi Ma discusses important considerations when buying an NHS practice following Covid-19.
As the country and the dental industry continues to be tested by complications as a result of the Covid-19 outbreak, many dentists are looking to the future. In this article, we explore some of the main take-home points on buying a fully NHS practice since the Covid-19 outbreak.
Before the outbreak
Since the issue of the 2006 GDS/PDS contracts, buying an NHS practice has always been more involving from a legal perspective. There were more pieces of the jigsaw to fit in place and more information to be scrutinised before we would advise a client to proceed to exchange of contracts and completion.
Monthly UDA statements, remedial or breach notices and end of year financial statements of activity are a few of the documents required when carrying out legal due diligence for our clients. This basically meant us checking for potential risks in order to be able to advise our buying client on the transaction.
During the outbreak
The chief dental officer for England, Sara Hurley, published a letter to the dental profession March 25, effectively prohibiting all general dental practices and community dental services from carrying out routine and non-urgent dental care.
For NHS practices, this would have had dire consequences where income is dependent on hitting UDA/UOA targets. The guidance set out that dental practices with NHS contracts would continue to be paid 1/12th of their current annual contract value each month but only if the practice met a number of conditions. These included:
- Making staff available for redeployment
- Ensuring staff are paid at their previous rates
- Agreeing to a reduction for variable costs
- Agreeing not to seek any wider government assistance which could be duplicative
Upon reopening
Previously, one of the key pieces of information we would obtain when buying a dental practice was the UDA/UOA performance records. However, performance can no longer be based on UDA/UOA performance. The ability to provide dental treatment at rates seen during our UDA/UOA years are impossible for the foreseeable future. With social distancing requirements, decontamination and fallow periods for surgeries, it will be some time (if at all) before practices are able to resume normal provisions of service.
What to look out for
If you are buying an NHS dental practice, your solicitor should be raising key due diligence enquiries and making specific Covid-19 provisions in the contract. Remember the conditions for payment detailed above? Let us look into this further.
Making staff available for redeployment
Some urgent dental centres were opened regionally. Staff could have been re-deployed to these centres or indeed, to any NHS treatment facility that may have been required. Make sure your solicitor gathers information on staff positions, the full details such as; Who? Where? When? What is the current commitment?
Ensuring staff are paid at their previous rate
Where you are looking at employees – usually nurses, receptionists and office managers – the answer can be pretty straightforward. However, many associates, hygienists and therapists are retained as self-employed clinicians. Many will have been paid according to the number of UDAs performed but in a non-UDA scenario, how does this work? It all comes down to common sense. It would not be right for a principal to maintain that a UDA rate base of pay continues when UDAs are not being performed. In this situation, see what the clinicians were being paid, for example, over the average period in 2019. This should be the figure being paid to the clinicians.
Agreeing to a reduction of variable costs
The CDO recognised that there would be a reduction of variable costs (consumables, lab bills and so on) as a result of the lockdown and because practices were not operating at their usual output. In the fifth letter published by the CDO dated July 13, 2020, the abatement figure was set out at 16.75 per cent of total contract value from April 1, 2020 – June 1, 2020 and this would be clawed back from the monthly payments through to March 31, 2021.
Ensure your solicitor has requested sight of the pay statements and has highlighted the deduction for your attention. As this deduction will be made up to March 21, 2021, unless you are completing at the financial year end, ensure your solicitor has made provision for this abatement to be split between you and the seller, or alternatively have a retention held back from the purchase monies in order to reconcile the abatement payment between the parties.
Agreeing not to seek any wider government assistance which could be duplicative
During the pandemic, the chancellor has issued various financial aid packages. Where a practice income comes 100 per cent from an NHS contract, they should not have applied for additional government assistance and if so, they must have been absolutely sure that they were entitled. In the event that they did obtain further financial aid, they must be prepared for the risk in either paying back the NHS income or the wider government assistance should they be found to have claimed incorrectly. Consider the packages such as the Job Retention Scheme (JRS), Coronavirus Business Interruption Loan Scheme (CBILS) or Bounce Back Loan Scheme (BBLS). Ensure your solicitor has asked if any other grants or government financial schemes were implemented at the practice. If so, your solicitor must get to the bottom of it.
The sale purchase agreement should be used to its full potential to reduce your risk. A solicitor with experience in dealing with an NHS practice will ensure that the correct questions are asked. They will also ensure that provisions are inserted into the agreement to protect you, such as an indemnity to protect you against any request to repay monies incorrectly claimed by the seller.