In private medical practices, the intersection of clinical responsibilities and business operations demands careful succession and emergency exit planning.
This ensures continuity of care, financial stability, and compliance with legal regulations. These transitions become even more complicated when the practice’s premises, whether owned or leased, significantly contribute to its value.
What follows is a comprehensive guide for private medical practices and consultant-led clinics on effectively planning for succession and emergency exits, with practical examples relating to the practice premises.
Understanding succession planning
Succession planning involves preparing for the transfer of ownership or leadership in a practice, typically due to retirement, sale, or unforeseen circumstances, such as illness or death. Succession planning is essential for several reasons:
Continuity of patient care: Patients often build long-term relationships with their doctors, particularly in specialist fields. A sudden departure without a succession plan will disrupt care, potentially harming patients and damaging the practice’s reputation.
Maintaining business value: The personal reputation of the consultant or owner often underpins the business’s financial success. A well-crafted succession plan helps retain the value of the practice by facilitating a smooth transition of leadership and minimising potential revenue loss.
- Example: A private practice needs to consider how to retain the expertise of a particular consultant or owner in a succession plan. Decisions about whether to implement arrangements post transfer to retain the consultant or owner for a particular period to allow sufficient training of employees/handover must be made ahead of transfer to ensure the terms of such arrangements are appropriately managed.
Regulatory and legal compliance: Health regulations require private medical practices to ensure continuity of care and proper management of patient records. A clear succession plan helps avoid legal complications and ensures compliance with relevant healthcare laws.
Premises and property considerations: Location significantly impacts a practice’s value. Whether the property is leased or owned, the succession plan must address future management or ownership of the premises.
- Example: A private practice in a high-demand area, owning its premises, needs to consider how the property will be managed in a succession plan. Decisions about whether to sell or retain the building, lease it to the successor, or merge with a larger practice must be made early to prevent disruption.
Key components of a succession plan
Identifying and training successors: The most critical part of succession planning is identifying who will take over, whether a junior doctor within the practice, or an external consultant. Once a successor is identified, they should undergo a training period in order to learn both the clinical and business aspects of the practice, allowing time for mentorship and patient familiarity.
Legal and financial arrangements: Another important aspect of succession planning involves preparing the necessary legal and financial documentation.
Ownership and equity transfer: For practices owned by the consultant, ownership transfer might involve preparing sale agreements, partnership agreements, and other ancillary documents specifying how shares or assets will be distributed or sold to the successor.
- Example: A private practice will need to consider whether its successor will be a sole practitioner, company, or partnership, as contracts vary accordingly. Additionally, if the practice is held by a company, it must choose whether to sell its shares or just the business and assets, depending on the practice’s liabilities and the purchaser’s willingness to assume them.
Property considerations: A private practice should decide early whether to sell, retain, lease, or merge its owned premises. For leased premises, review the lease agreement early to ensure a smooth transition.
- Example: A practice that owns its building might retain ownership and lease it to the incoming owner, providing income for the retiring consultant and stability for the practice.
Emergency exit strategies
While succession planning covers long-term transitions, emergency exit strategies address sudden, unforeseen events such as the death or incapacitation of a consultant. An emergency exit plan ensures the practice continues operating, patients remain cared for, and the business survives.
Sudden events, such as illness, death, or a personal emergency, will leave a practice in disarray if there are no contingency plans in place.
In the medical field, service gaps have serious consequences for patients. A robust emergency exit plan ensures patient care continues in the event of an unexpected departure.
For rented premises, provisions should ensure that lease agreements are transferred or temporarily managed to enable the practice to remain in occupation. This avoids any legal issues with the landlord and ensures the premises remain available for continued operations.
- Example: A private practice might have a lease allowing subleasing or temporary management in case of sudden incapacity. This ensures the practice can continue under temporary leadership without breaching the lease terms.
Developing an emergency exit plan
An emergency exit strategy should designate a temporary leader, such as a senior consultant or office manager, to oversee operations until a permanent solution is found. In smaller practices, an office manager or trusted administrator may be given the authority to manage business operations, ensuring that the clinic continues running during an interim period.
For owned premises, it may be beneficial to create a clear property management plan, including for temporarily leasing the space or assigning lease obligations to a temporary leader.
Property aspects in succession and emergency planning
Whether the premises of a medical practice are owned or leased significantly affects the succession and emergency exit planning process.
Valuation of the property: For practices that own their premises, the property’s valuation is crucial. The property’s location, condition, and market value may either enhance or detract from the practice’s appeal during a transition or sale. Properties in high-demand areas may add significant value, while those in less desirable locations or requiring substantial maintenance may decrease the overall value. Additionally, over time, properties often appreciate, providing a financial cushion for retiring consultants.
- Example: A private practice in central London which owns its building within a medical district, would be highly sought after, substantially increasing the practice’s overall valuation.
Owned vs. leased premises: The question of whether the premises are owned or leased plays a crucial role in planning. For practices that own their property, the building becomes a significant asset. Retiring consultants may choose to retain ownership of the premises as an investment and lease the premises to the incoming successor. Alternatively, they might sell the property with the business, but buyers will need to secure financing for the purchase of both the property and the business. A sale-leaseback arrangement allows the consultant to sell the property to a third party while continuing to lease it for practice use. This provides liquidity while maintaining operational continuity. For rented premises, lease terms are crucial. Succession plans must consider the terms of the assignment to a new owner or must be sublet. Leases may contain restrictive covenants that could impede a sale of the business.
- Example: A clinic with a long-term lease agreement and assignment provisions is able to smoothly transfer the lease when the owner retires and the practice merges with a larger entity, avoiding disruption to clinic operations.
Mergers and acquisitions: In some cases, practices may choose to merge with another entity. Property considerations are a key part of a merger. Practices that own their premises provide additional leverage in a merger. The acquiring entity may value the property for expansion or for its prime location. In contrast, if the practice leases its premises, the acquiring party must review the lease terms carefully. A long-term lease in a prime location may add value, while restrictive lease clauses may complicate the merger.
- Example: A private surgery in a medical hub merges with a larger healthcare group. Since the practice owns its building, the merger deal is enhanced by the property’s market value.
Key points
Succession and emergency exit planning are crucial for ensuring the stability of private medical practices and consultant-led clinics. Addressing long-term transitions and unexpected events protects patients, staff, and the business. Whether the premises are owned or leased, property considerations must be incorporated into these plans to preserve the value of the practice and ensure smooth leadership transitions.
Effective planning secures the practice’s legacy, maintains patient care, and guarantees operational continuity for years to come.
Jessie Somerville and Danielle Elmy-Liddiard are solicitors at Hempsons.
