“Enter markets where the leaders are not doing a great job, go in and disrupt them by offering better quality services” Richard Branson, Founder at Virgin Group
All across England at the moment we have General Practices coming together to form “federations” and “provider companies”. However, many appear to have little or no idea of why they are forming, or for what purpose, which automatically puts them at risk of failure. This is why 12 to 24 months on, for some, they have nothing to show for the time they have put in or the money spent.
In previous posts over the last 12 months we have looked a number of times at how to structure a company capable of representing General Practice at scale, meaning that hopefully you now understand that the set up is only a start point. The set up gives you a vehicle, nothing more or less; you then need to use the vehicle for the purposes for which you designed it, and this is where problems may start to arise.
For many who set up there is an expectation of work flowing through the door; that the CCG will engage with them in the pursuit of news way of working, new models of care, integration with other providers, delivery of Better Care Fund work and the delivery of new improved outcomes, without unexplained or unwarranted variation.
There are, of course, some great examples of CCGs working with these new companies and directly commissioning services. Within my work Central Manchester CCG, Warwickshire North CCG and Salford CCG are three good examples, where they have contracted directly with the federations in those areas. These provide a good benchmark for what is possible with the right will and mindset.
Unfortunately, the reality for most is that CCG engagement never gets beyond a whole load of meetings. They are unwilling to take any risk in working with the new companies directly and as a result, with no plan of action beyond the CCG directly commissioning services, many of these companies simply stagnate and ultimately some of them are likely to fail.
This is also why I firmly believe co-commissioning is a disaster waiting to happen for General Practice. CCGs wedded to the past ways of working will simply squeeze General Practice income, wanting more and more work for the same or less money, without stopping to consider how you might deconstruct, and then reconstruct, service delivery. You can see this happening now with AQP: lower income for considerably more work, with no redesign or use of technology. As an example, this is why we have service specifications being issued that state “Practice-funded Professional takes blood sample in practice, practice test, practice dosing” when we could use technology and safely remotely monitor patients taking anticoagulant medication.
It is for these reasons that I urge anyone considering setting up a company to go in with your eyes open, and to have a clear vision for what you expect to achieve, along with a clear plan of where you will secure income with at least some degree of certainty. Without that in place I would urge extreme caution.
You also need to keep in mind that a Board of Directors that costs £100,000 to run will need contracts valued at in excess of £1,000,000 in total (assuming it takes out 10% of the contract value as running costs). This gives some perspective to what you are taking on; without those contracts the Shareholders will be funding the board costs.
To further explain, as you will undoubtedly be aware, a company needs a surplus of income over expenditure to remain in business; it is the premise of every business worldwide, as from income it pays its costs. What most CCGs panic about is SURPLUS. It is not actually about profit, as even not for profit companies need a surplus to stay in business and service their ongoing running costs, it is about what to do with anything left after all costs have been deducted. Therefore, the key question is what will the company do with any surplus?
If the company is good at what it does it may well end up with a surplus; however, as federations/provider companies are invariably structured to maximise income for Practices, it is not normally envisaged that large surpluses will exist. The board will manage this
for the shareholders, and working smart will reduce the likelihood of dividends being paid to shareholders. This is achieved by working on the basis that people will be paid to deliver work rather than sit back and wait on a dividend. Dividend payment can also be removed as an option at set up.
All of this should provide reassurance for any CCG prepared to formally engage and to work to understand what the company is set up to achieve, how it will work and what it will do with any surplus.
You also need to keep in mind that the CCG doesn’t have to perform, deliver or achieve anything in the way a federation/provider company does. There is no pressure on it for outcomes as it receives a grant from the DH of £22.50 per head of population for management costs. Consequently I think it safe to assume that there is a cost associated with managing a business, which CCGs appear to believe doesn’t translate to the federation, where eanagement should clearly be free, and this is why may CCGs continue to try and negotiate services at cost. The “profit” fear overrides any common sense with regards to the running costs of the company.
One day Alice came to a fork in the road and saw a Cheshire cat in a tree. “Which road do I take?" she asked. "Where do you want to go?" was his response. "I don't know," Alice answered. "Then," said the cat, "it doesn't matter." Lewis Carroll, Author
Don’t let the quote above apply to your federation/provider company. Have a plan and stick to it. Ensure you have ideas about how and from where you will secure your income and don’t have all your eggs in one basket.
Within our work we have many examples of work we have secured for the companies we have been involved in setting up and then supporting to get going. This includes:
- 24 Hour Ambulatory Blood Pressure Monitoring (FT subcontract)
- Front Door to A&E (FT Subcontract)
- 24 Hour ECG (FT Subcontract)
- Primary Care Quality – tackling variation (direct contract from CCG)
- Frail Elderly (direct contract from CCG)
- Community Gynaecology (FT Subcontract)
- Pre-op assessment (pilot on subcontract from FT)
- Many, many more running and in development.
For more information on how BW Medical Accountants can support you in forming a federation and our on-going support service. Call Rachael Mackay on 0191 653 1022 to arrange a discussion/meeting.
Additionally, if you should have questions, please email firstname.lastname@example.org and we will do our best to answer these within the blog.