Annex 2: Illustrative scenario modelling of provider organisational forms

Transcription

1 Annex 2: Illustrative scenario modelling of provider organisational forms February 2017 NHS Improvement 2017 publication code: P 02/17 The NHS Five Year Forward View (5YFV) introduced the concept of a multispecialty community provider (MCP). A detailed description of the MCP care model was set out in the MCP emerging care model contract framework, published in July The MCP is one type of whole population provider. A second framework, published in September 2016, described the integrated primary acute care systems (PACS) care model the business model. In both cases, the frameworks set out the detail of the care model envisaged. Changes to traditional contracting, commissioning funding arrangements are required to facilitate delivery of the 5YFV of sustainability of NHS services. Similarly, the provider organisational forms of MCP PACS new care models may depart from the traditional forms of organisations holding very high value NHS stard contracts, general practice contracts or local authority contracts. The scenario modelling is designed to assist commissioners providers in their thinking about organisational form. We do not consider all available or permitted models but do show a range of possible options. Also, we do not cover all the issues factors that need to be considered in the comprehensive or definitive assessment necessary ahead of deciding which form to adopt. example, our modelling explores the extent to which GPs might interact with the entity considers the business under each scenario. We have not considered some issues in the same detail, such as wider questions on governance arrangements. All the scenarios have the capacity, where appropriate, to give clinical leaders operational control of the delivery of the care model. For instance, in a foundation trust MCP, GP-led business units could be established to maintain a strong link between GPs their patients to allow innovation. These scenarios are part of the package of publications to support the implementation of care models contained in the MCP PACS frameworks. In this first stage of analysis we have focused on how health organisations can relate to an MCP although many of the findings are relevant to PACS also. We plan next to consider how local authorities ( the inclusion of social care public health in service scope) relate to an MCP. The modelling does not set out any preference or policy on the part of NHS Engl or NHS Improvement as to choice of form. National bodies continue to consider the policy regulatory/oversight issues which may be raised by the different forms. While illustrative only, the options explore a range of issues factors that could be relevant to providers considering developing their organisational form to deliver the MCP contract. For

2 Scenario 1: Limited liability partnership (LLP) A group of GPs forms a legal entity to hold the MCP contract. The legal form is a limited liability partnership (LLP). Scenario 2: Corporate joint venture between a foundation trust GPs A group of GPs a foundation trust establish a new company (ie a separate business) in the form of a corporate joint venture to hold the MCP contract. The company is established as a company limited by shares (CLS) which is also a community interest company (CIC). Scenario 3: Host One organisation acts as the host, holding the MCP contract on behalf of a pre-existing alliance of providers. Activity is both delivered by the contract holder subcontracted to other providers. Risk reward are shared through the contractual arrangements. Each provider delegates decisionmaking to its representative on an alliance partnership board who can bind their organisation (within the scope of their delegation). Scenario 4: Existing foundation trust A community foundation trust is the MCP contract provider. GPs suspend GMS/PMS opt to become employees of the foundation trust. Note that an NHS trust could also hold an MCP contract many of the considerations will be the same as those for a foundation trust. Scenario 5: Tight contractual alliance The CCG providers form a tight contractual alliance to deliver MCP services under their existing contracts with the commissioner. This is a virtual MCP reflects the likely characteristics of a contractual joint venture. Main assumptions for all scenarios Service scope For simplicity illustrative purposes, the models include GP community services only. Unless specified otherwise, the local health economy is comprised of a community foundation trust 50 individual GP practices. The entity can deliver all components of the care model. Finance capitalisation Providers holding the MCP contract or participating in the MCP are solvent capable of holding reasonable downside risk. GP The legal entities involved in primary care delivery are individual practices (not GP federations). GP practices in an area all make the same choice about whether or not to join the MCP. GMS/PMS contracts are suspended. Governance, assurance due diligence Normal stards of corporate governance apply are adhered to by the MCP, where relevant, its owners, shareholders members, including compliance with any appropriate codes of governance. The stards, the rigour of the monitoring oversight of these stards, may differ between models. Commissioner has taken appropriate due diligence as set out in the integrated support assurance process (ISAP) for complex novel contracts. The required regulatory processes (eg transaction reviews, systems assurance) can take place within acceptable timeframes. Workforce Other Professional stards regulatory requirements for all disciplines remain the same (ie requirement for a GP to be included on the performers list). Where a relevant transfer takes place, the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) may apply. In such cases, any workforce reorganisation required for the care model will take place after the transfer. The extent to which subcontracting arrangements are agreed locally is not set out unless specifically stated. The delivery timetable is achieved (eg procurement contract award) for all the main milestones.

3 Scenario 1: Limited liability partnership (LLP) Description A group of GPs forms a legal entity to hold the MCP contract. The legal form is a limited liability partnership (LLP). Assumptions GPs act collectively to secure an MCP contract. No Area Key lines of enquiry (KLOE) How it works Issues considerations 1 Set up How is the organisational LLP members negotiate agree the arrangements between themselves, It is not compulsory to produce a written LLP agreement although this is form established? document these in an LLP agreement. strongly recommended. An LLP is or has: a body corporate, with a separate legal personality from its members (members are sometimes referred to as partners) unlimited capacity it can do anything that a legal person can do limited liability with certain exceptions, its members do not have to meet its liabilities taxed like a general partnership that is, it is tax transparent, for most purposes its members pay tax on their share of the LLP's income as if they had earned it themselves, with the LLP itself incurring no tax liability on its profits. An LLP is similar to a limited company, save for the final point regarding taxation on its profits. A limited company is managed by its board of directors (not its members or shareholders), an LLP can establish a similar two-tiered management by constituting a management board under its LLP agreement. 2 Set up What are the set up costs? Legal costs, financial accountancy costs, financial contribution including capitalisation (see no 9). Two or more existing LLPs can merge but creating a new LLP is likely to be simpler cheaper. 3 Set up Is set up achievable within the MCP contract delivery timetable? Set up can be achieved within the timetable but the commissioner needs to take appropriate due diligence as set out in the integrated support assurance process (ISAP). Commissioners should have regard to the Procurement, Patient Choice Competition Regulations. A merger between GP practices could potentially be reviewed by the Competition Markets Authority (CMA). NHS Engl s guide to practice merger can be found at: Because the LLP is a new entity, it may be harder for it to demonstrate a track record of service delivery as part of the due diligence process for contract award as set out in the ISAP.

4 4 Set up Can participants exit the arrangement if their circumstances materially change? Parties (the commissioner the LLP) can exit the MCP contractual arrangement according to the termination provisions in the MCP contract. Employees can resign from their position in accordance with their contract of employment. Individual members can sell or dispose of their interest (ie equity share) to another party. However, any change in membership of a LLP /or change in control that has implications for voting rights ( therefore decisionmaking by the organisation) may trigger a change in control, requiring commissioner consent as set out in the provisions in the MCP contract. 5 Governance 6 Governance 7 Governance How are decisions made can the entity take tough decisions that are binding? Is there clear responsibility for the following key aspects of governance: quality, outcomes finance? Can the entity be effectively regulated within the current regulatory framework? Nominally all members have a say in the management of an LLP, but the LLP agreement is likely to provide for members delegating their functions to an executive board. There is flexibility within the LLP agreement to afford different rights to members in the extent to which partnership law is applied. If no agreement is in place, default provisions may be applied that require unanimous agreement from members. A well-constructed LLP agreement sets out accountabilities who makes decisions in the event of disagreement. Independent providers are not regulated in the same way as NHS bodies. NHS trusts foundation trusts are monitored against both finance governance ( associated quality operational stards), whereas independent providers are only monitored for financial risk if they hold a licence the services they deliver have been designated by commissioners as commissioner requested services (CRS). The LLP is likely to be designated as a CRS provider. There is no maximum number of members. Any investor will want to exercise control to ensure that their investment is safe. The statutory obligation for NHS trusts foundation trusts to have arrangements to involve patients/the public do not apply to LLPs. Consideration should therefore be given to whether how this should be addressed in the LLP structure. The independent provider regulatory regime does not include oversight of financial governance in a general sense will not include such policies as agency caps or pay restraints. Also, there is no tailored financial failure regime for non-nhs bodies providing CRS such as the trust special administration (TSA) regime for NHS bodies so general insolvency rules apply. 8 Governance What are the implications of financial failure of the organisation? CQC is responsible for regulating all providers of regulated activity as set out in the Health Social Care Act The new entity is required to register with CQC. The LLP could become insolvent. If the LLP ceases operating, the parties may apply for the LLP to be wound up under the Insolvency Act The financial responsibility of the LLP members is restricted to the total amount they have invested in the LLP together with any financial guarantee they have agreed to pay. In the event of the LLP becoming insolvent, GPs can return to their suspended GMS/PMS contracts continue to deliver primary care services. GPs providing investment funding to the LLP will need to consider the personal implications of the loss of any investment. Commissioners need to secure continuity of service for patients service users in the event of insolvency. In the event of provider failure, commissioners are at risk of having to finance a re-procurement if the MCP contract includes no suitable provision to cover this scenario.

5 9 Financing How can the organisation access capital? 10 Financing To what extent is the public sector exposed to financial risk? Depending on the appetite of members to put in capital, GPs may capitalise it themselves or seek capital from commercial funding sources. Note that the members liability is restricted to the total amount they have invested in the LLP together with any financial guarantee they have agreed to pay. The LLP creditors will then bear any losses. Non-NHS bodies have access to commercial funding sources both in terms of debt equity; but will need to satisfy lenders investors that they can repay. In the initial set up of the organisation, capital is most likely to be available from investors with good knowledge of the healthcare sector. Considerations include the extent to which the entity can absorb some pressures in year which could come from parent company guarantees, or capital from a private entity. 11 Business 12 Business What flexibility is there for moving funds between the different services provided by the MCP? What are the corporation tax VAT implications of the legal structure? The commissioner has a duty to ensure continuity of service in the event of provider failure. As the contract holder, the LLP holds deploys a whole population budget this maximises the opportunity to direct use resources flexibly to deliver the contractually agreed service model. Flexibility is maximised where the provider delivers the services directly. Subcontracting potentially reduces this flexibility. As with all providers of healthcare services (other than those listed at s41(7) VAT Act 1994 such as NHS bodies), the LLP cannot claim back VAT on purchases of goods services related to healthcare unless it makes a VAT-able onward supply. No organisation can cover all losses indefinitely even parent company guarantees will reach a limit. Commissioners need a clear understing, before awarding a contract, of a provider s willingness to absorb loss/tolerance for absorbing loss. The commissioner also needs to ensure that the contracted services are financially sustainable. Each member of the LLP will retain its own tax status. 13 Business Does the structure affect the scope for efficiency gains? The LLP is not liable for corporation tax but members are subject to taxation as individuals. As a general principle, the larger the consolidation of entities /or activities, the greater the scope for efficiency gains. 14 Business 15 Business 16 Business Are there any restrictions on or considerations for profit /or dividends? What are the options for indemnity do these affect the financial efficiency of the organisation? What flexibility is there to reconfigure how staff are deployed utilised across clinical pathways services? If the MCP takes the form of an LLP, then profits may be shared between members in accordance with the LLP agreement. As a non-nhs body, the LLP can potentially hold Clinical Negligence Scheme for Trusts (CNST) membership for the health services it provides, other than primary care. The organisation could secure cover for its primary care activities as well as any healthcare services through commercial cover from insurance indemnity providers. As a single entity employer, there is greater scope for adopting a single employment model that enables greater flexibility in the deployment of staff across clinical pathways services. An appropriate set of change management redeployment policies is required. Distributions are subject to any of the LLP agreement /or MCP contract. Primary medical care services are usually provided under commercial insurance or indemnity arrangements made by GP practices. Policies for harmonisation of staff terms need to be determined if staff are transferred in on existing terms.

6 17 GP What GP roles are available in the MCP? GPs can be members as well as employees of the LLP. They can be employed in leadership management roles (of which there will be a small number) for new existing services: director roles at board level roles on board committees operational management roles. 18 GP What GP roles are available to influence the strategy of the organisation? Directors at executive board level (small number). Members. Directors of service providers (or those performing similar functions to those of a director) are required to meet the CQC fit proper person test, if holding a licence, the separate NHS Improvement fit proper person test. There are significant freedoms around organisational structures role design as long as they are affordable capable of delivering sustainable quality services outcomes. 19 GP What management opportunities are available in the MCP? What financial risks are GP members exposed to how can they manage them? The MCP has flexibility in the design of its management structure. 20 GP Some GPs are likely to hold some financial risk. GPs who choose to become members share risk up to the total amount they have invested in the LLP together with any financial guarantees they have agreed to. Other GPs may choose just to be employees of the LLP. GP members can mitigate the financial risk to themselves by seeking commercial investment. This comes with sharing in the control of the LLP. The LLP has considerable scope, subject to its LLP agreement, to distribute profits. 21 GP Can members make a gain? Distributions are subject to any of the LLP agreement /or MCP contract. 22 Employee To what extent are staff terms changed? TUPE may apply. In situations where TUPE applies, staff transfer on their existing terms. In the longer term there may be scope for these to be changed in line with relevant legislation following the appropriate consultation. Where TUPE applies, contractual working arrangements, including terms, should not be changed before a transfer where these changes relate directly to the transfer. Full employment liability for each employee will normally transfer with them, including redundancy where this applies. Transfers of staff from public bodies are also covered by the Cabinet Office Statement of Practice (COSoP), January 2000 (revised December 2013), with further principles relating to pensions in the Fair Deal annex. 23 Employee What are the remuneration/pay setting level options for employees? Subject to its own governance arrangements TUPE, the organisation can vary salary pay bonuses. Although remuneration controls do not apply to the LLP directly, public political interest in proportionate remuneration of senior NHS other public staff should be considered. NHS Employers provides guidance on maximum minimum remuneration for employed GPs. 24 Employee What potential is there for creation of a common set of organisational values, identity, culture purpose? As a single entity employer, there is greater scope for the creation of a common set of values, organisational identity, culture purpose.

7 25 Employee Can the provider access the NHS pension scheme? The MCP stard contract is intended to be a qualifying contract for the purposes of access to the NHS pension scheme through the independent provider route. Further guidance is available at Some GPs may move from practitioner to officer status in NHS pension terms. In reality an employee is unlikely to need the additional flexibilities provided by practitioner status. 26 Employee What opportunities are there for staff career progression/learning development? Are there any staff sensitivities? Structures job roles are determined by the MCP along with career paths progression opportunities. The MCP determines its own learning development offer. When designing the structures roles within the MCP, consideration should be given to how staff will be encouraged enabled to progress their careers professional skills. 27 Employee Planned well-conducted staff engagement is critical to a smooth transition MCP set up: all affected staff need to know what to expect, be given the opportunity to inform decisions about proposals that affect them, be properly consulted on any changes to their current working/contractual arrangements. Staff transferring into the LLP may be concerned about the potential for terms to change. Some staff may view this favourably. Any change process needs to minimise disruption to day-to-day delivery address both the organisational personal impact of changes to an individual s existing employer/employment status, terms.

8 Scenario 2: Corporate joint venture between GPs foundation trust Description A group of GPs a foundation trust establish a new company (ie a separate business) in the form of a corporate joint venture to hold the MCP contract. The company is established as a company limited by shares (CLS) which is also a community interest company (CIC). GPs can be directors, shareholders or employees, or take on a combination of these roles. Assumptions Control of the CIC is divided between the GPs acting collectively the foundation trust. The GPs agree a process for their views as shareholders to be represented in aggregate, ie they speak with one voice. Through a transaction review or equivalent process, regulators have confirmed that they are content with the foundation trust's approach. No Area Key lines of enquiry (KLOE) How it works Issues considerations 1 Set up How is the organisational The CIC is established as a company limited by shares. A corporate joint venture creates a new legal entity. form established? The primary purpose of a CIC is to benefit the community it serves (not its shareholders, directors or employees). Its community interest statement sets out the beneficiaries of the CIC how the CIC's activities benefit the community. 2 Set up What are the set up costs? Legal costs, financial accountancy costs financial contribution including capitalisation (see no 9). 3 Set up Is set up achievable within the MCP contract delivery timetable? Set up is possible within the timetable but the commissioner needs to take appropriate due diligence as set out in the integrated support assurance process (ISAP). The foundation trust has the power to enter into contracts to form or participate in companies. There are overarching governance vires issues for the foundation trust, including but not limited to the foundation trust needing to ensure that any investment is made in connection with its functions broad powers. Transactions involving foundation trusts may be subject to a formal transaction review risk rating by NHS Improvement, depending on their scale. This process will be within the scope of the overall NHS Engl NHS Improvement ISAP for complex novel contracts. Transaction reviews are discussed in more detail under Scenario 4. 4 Set up Can participants exit the arrangements if their circumstances materially change? 5 Governance How are decisions made can the entity take tough decisions that are binding? Parties (the commissioner the corporate joint venture MCP) can exit the MCP contractual arrangement according to the termination provisions in the MCP contract. Employees can resign from their position in accordance with their contract of employment. The CIC works for the benefit of the community. It has directors shareholders (also called members). The CIC requires a memorum of association articles of association which establish directors' shareholders powers responsibilities. Duties are imposed on directors in accordance with general company law. In addition, directors are responsible for ensuring that the company is run in such a way that it Some transactions may also require review by CMA. A joint venture that allows equal representation voting rights has the potential for deadlock where each party takes an opposing view no decision can be made. Deadlock can arise at board level (eg where opposing positions are taken by an equal number of directors there is no casting vote) or at participant level (where participants fail to agree those matters which have been reserved to them). Shareholders may,

9 continues to satisfy the community interest test, which is overseen by regulation. An asset lock helps safeguard the benefits to the community the CIC was set up to serve. Provisions are required to prevent the CIC falling under the control of individuals, or organisations, who are not members. by special resolution, prevent the directors from taking specific action. The CIC needs to decide where internal for the fundamental stards of care sits. 6 Governance Is there clear responsibility for the following key aspects of governance quality, outcomes finance? The articles of association should set out the accountabilities, voting rights who will make decisions, eg in the event of disagreement. The foundation trust is accountable for its own quality, outcomes finance governance (through the NHS provider licence). The statutory obligations for NHS trusts foundation trusts to have arrangements to involve patients/the public do not apply to non-nhs bodies such as CICs. Consideration should therefore be given to how this should be addressed in the CIC structure. 7 Governance Can the entity be effectively regulated within the current regulatory framework? Independent providers are not regulated in the same way as NHS bodies. NHS trusts foundation trusts are monitored both against finance governance, whereas independent providers are only monitored for financial risk if they hold a licence the services they deliver have been designated by commissioners a CRS. The foundation trust remains subject to NHS Improvement regulation. As participation in the joint venture may impact the foundation trust s financial sting sustainability, NHS Improvement s monitoring of the foundation trust will indirectly include monitoring of the performance of the joint venture. NHS Improvement s intervention powers only apply if the foundation trust breaches its licence not for any governance failures of the joint venture. The CIC is regulated by the Office of the Regulator of Community Interest Companies. CQC is responsible for regulating all providers of regulated activity as set out in the HSCA The CIC could become insolvent. 8 Governance What are the implications of financial failure of the organisation? If the CIC ceases operating it may be wound up under the Insolvency Act The losses of the MCP are shared according to the articles of association up to the limit of its share capital. In the event of the CIC becoming insolvent, GPs can return to their suspended GMS/PMS contracts continue to deliver primary care services. GPs providing investment funding to the CIC will need to consider the personal implications of the loss of any investment. Commissioners will need to secure continuity of service for patients service users in the event of insolvency. 9 Financing How can the organisation access capital? Capitalisation contributions need to be agreed by the foundation trust GPs. GPs may contribute to capitalisation themselves or seek capital from commercial funding sources. In the event of provider failure, commissioners are at risk of having to finance a re-procurement if the MCP contract includes no suitable provision to cover this scenario. Borrowing may affect the foundation trust s financial risk the implications will be considered as part of NHS Improvement s transaction review. The relative contribution of capital by the foundation trust GPs may have a bearing on the ability of the foundation trust GPs to have equal control of the joint venture.

10 10 Financing To what extent is the public sector exposed to financial risk? 11 Business 12 Business What flexibility is there for moving funds between the different services provided by the MCP? What are the corporation tax VAT implications of the legal structure? The risk carried by the foundation trust associated with service delivery under the contract sits with the public sector. The commissioner has a duty to ensure continuity of service in the event of provider failure. As the contract holder, the CIC holds deploys a whole population budget this maximises the opportunity to direct use resources flexibly to deliver the contractually agreed service model. Flexibility is maximised where the provider delivers the services directly. Subcontracting potentially reduces this flexibility. As with all providers of healthcare services (other than those listed at s41(7) VAT Act 1994 such as NHS bodies), the CIC cannot claim back VAT on purchases of goods services related to healthcare unless it makes a VAT-able onward supply. Considerations include the extent to which the entity can absorb some pressures in year which could come from parent company guarantees, or capital from a private entity. No organisation can cover all losses indefinitely even parent company guarantees will reach a limit. Commissioners need a clear understing, before awarding a contract, of a provider s willingness to absorb loss/tolerance for absorbing loss. The commissioner also needs to ensure that the contracted services are financially sustainable. The CIC is liable for corporation tax. As a general principle, the larger the consolidation of entities /or activities, the greater the scope for efficiency gains. The CIC is subject to an asset lock dividend cap (total dividends cannot exceed 35% of profits). 13 Business 14 Business Does the structure affect the scope for efficiency gains? Are there any restrictions on or considerations for profit /or dividends? What are the options for indemnity do these affect the financial efficiency of the organisation? Distributions are subject to any set out in the MCP contract. 15 Business As a non-nhs body, the CIC could potentially hold Clinical Negligence Scheme for Trusts (CNST) membership for the health services it provides, other than primary care. The organisation could secure cover for its primary care activities as well as any healthcare services through commercial cover from insurance indemnity providers. Primary medical care services are usually provided under commercial insurance or indemnity arrangements made by GP practices. Where the CIC is unable to hold CNST cover for primary care, this is equivalent to the current position for GP practices. 16 Business What flexibility is there to reconfigure how staff are deployed utilised across clinical pathways services? What GP roles are available in the MCP? As a single entity employer, there is greater scope for adopting a single employment model that enables greater flexibility in the deployment of staff across clinical pathways services. An appropriate set of change management redeployment policies is required. Policies for harmonisation of staff terms need to be determined if staff are transferred in on existing terms. 17 GP GPs can be members as well as employees of the CIC. They can be employed in leadership management roles (for a small number) for new existing services: There is some freedom around organisational structures role design as long as they are affordable can deliver sustainable quality services outcomes. director roles at board level roles on board committees operational management roles. Consideration should be given to the potential impact of significant change to existing roles structures on staff engagement, transfers productivity.

11 18 GP What GP roles are available to influence the strategy of the organisation? Directors at board level (small number). Shareholders (possibly tiered status). The CIC board is the principal decision-maker but some decisions may be reserved by the articles of association for the shareholders to make. A 50:50 joint venture is deliberately structured so that both parties have equal representation on the board equal voting rights. But a 50:50 joint venture has inbuilt potential for deadlock where each party takes opposing views no decision can be made. 19 GP 20 GP What management opportunities are available in the MCP? What financial risks are GP members exposed to how can they manage them? The MCP has flexibility in the design of its management structure. Some GPs are likely to hold some financial risk. GPs who choose to become members share risk up to the total amount they have invested in the CIC together with any financial guarantees they have agreed to. Other GPs may choose just to be employees of the CIC. Directors of service providers (or those performing similar functions to the functions of a director) are required to meet the two separate NHS Improvement CQC fit proper person tests. There will be some freedom around management structures as long as they are affordable can deliver sustainable quality services outcomes. 21 GP Can shareholders make a gain? GP members can mitigate the financial risk to themselves by seeking commercial investment. This comes with a sharing of control of the CIC. A CIC is subject to an asset lock a cap on dividends. A key feature of the CIC is that its activities are carried out for the benefit of the community. The CIC uses its assets, including profits, to benefit the community it was set up to serve. Distributions are subject to any of the MCP contract. A CIC can issue classes of shares with different rights. The CIC is subject to an overall restriction on the dividends it pays of 35% of profits. 22 Employee 23 Employee To what extent are staff terms changed? What are the remuneration/pay setting level options for employees? TUPE may apply. In situations where TUPE applies, staff transfer on their existing terms. Where TUPE applies, contractual working arrangements, including terms, should not be changed before a transfer if these changes relate directly to the transfer. Subject to its own governance arrangements TUPE, the CIC can vary salary pay bonuses. In the longer term there may be scope for these to be changed in line with relevant legislation following the appropriate consultation. Full employment liability for each employee will normally transfer with them, including redundancy where this applies. All public bodies are also covered by the Cabinet Office Statement of Practice (COSoP), January 2000 (revised December 2013), with further principles relating to pensions in the Fair Deal annex. Although remuneration controls do not apply to the CIC directly, public political interest in proportionate remuneration of senior NHS other public staff should be considered. NHS Employers provides guidance on maximum minimum remuneration for employed GPs.

12 24 Employee What potential is there for creation of a common set of organisational values, identity, culture purpose? Can the provider access the NHS pension scheme? As a single entity employer, there is greater scope for the creation of a common set of values, organisational identity, culture purpose. 25 Employee The MCP stard contract is intended to be a qualifying contract for the purposes of access to the NHS pension scheme through the independent provider route. Further guidance is available at Structures job roles are determined by the MCP along with career paths progression opportunities. GPs may move from practitioner to officer status in NHS pension terms. In reality the additional flexibilities provided by practitioner status are unlikely to be needed as an employee. 26 Employee What opportunities are there for staff career progression/learning development? The MCP determines its own learning development offer but may be able to lever opportunities from the foundation trust. Planned well conducted staff engagement is critical to a smooth transition MCP set up: all affected staff need to know what to expect, be given the opportunity to inform decisions about proposals that affect them be properly consulted on any changes to their current working/contractual arrangements. 27 Employee Are there any staff sensitivities?

13 Scenario 3: Host Description One organisation acts as the host, holding the MCP contract on behalf of a pre-existing alliance of providers. Activity is delivered by the contract holder subcontracted to other providers. Risk reward are shared through the contractual arrangements. Each provider delegates decisionmaking to its member(s) who sit on an alliance partnership board bind their organisation (within the scope of their delegation). Assumptions The MCP contract holder is ultimately responsible for delivering against its terms. The alliance arrangement is sufficiently strong to effectively pass risk reward between the alliance partners. While sharing many characteristics of a lead/prime provider with subcontracting arrangement, there is greater dispensation for alliance partners to be involved in decision-making through the alliance board. No Area Key lines of enquiry (KLOE) How it works Issues considerations 1 Set up How is the organisational form established? The way in which the organisation holding the contract is established will depend on the type of organisation. The alliance arrangement is a contractual arrangement. 2 Set up What are the set up costs? Legal costs for designing the contractual arrangement, financial accountancy costs, financial contribution including capitalisation (see no 9). 3 Set up Is set up achievable within the MCP contract delivery timetable? Set up can be achieved within the timetable but the commissioner needs to take appropriate due diligence as set out in the integrated support assurance process (ISAP). Transactions involving foundation trusts may be subject to a formal transaction review risk rating by NHS Improvement, depending on the scale of the transaction. This process is within the scope of the overall NHS Engl/NHS Improvement ISAP for innovative contracts. 4 Set up Can participants exit the arrangements if their circumstances materially change? Parties (the commissioner the acting contract host) can exit the MCP contractual arrangement according to the termination provisions in the MCP contract. Employees can resign from their position in accordance with their contract of employment. Subcontracting participants can exit contractual arrangements according to the termination rights in the subcontract alliance arrangement. The transaction review criteria are discussed under Scenario 4. Some transactions may also require review by CMA.

14 5 Governance How are decisions made can the entity take tough decisions that are binding? The organisation hosting the contract is responsible for the delivery of the MCP contract with the commissioner. The alliance arrangement needs to specify the decision-making mechanism between the alliance partners we envisage this to be through a partnership board type arrangement that decisions made in that partnership board are, as far as possible, legally binding on all partner organisations. The partnership board could consist of members from each of the alliance organisations (ie a director) to whom, where possible, decision-making rights have been delegated on behalf of their parent organisation. Alternatively, the recommendations made by the alliance partnership board would need to be approved by each alliance organisation. Clear operation of the alliance partnership board risk reward sharing are needed. Agreement can be reached locally on the operation of the alliance partnership board. This will reflect risk reward sharing the balance of, risk financial reward. As each organisation remains a separate legal entity registered with CQC, each continues to be accountable for decisions made which impact on care quality including ensuring the fundamental stards are upheld including where decisions are made using the alliance partnership board. Decisions to vary the arrangements between the providers (eg to change care pathways) need to be reflected in changes to the contractual documentation between them. Members of the alliance can delegate decision-making (in accordance with their own governance arrangements) to individuals who sit on the partnership board. Details including but not limited to data protection information sharing need to be considered dealt with by the alliance arrangement. A clear alliance agreement is needed that details which organisation is responsible for which issues. With multiple organisations participating in an alliance, who is accountable for what can become unclear for example, if one organisation is to take a lead on the development of a new or reconfigured care pathway involving two or more of the organisations. This risk can be mitigated through proper planning robust documentation once these arrangements have been agreed. 6 Governance Is there clear responsibility for the following key aspects of governance: quality, outcomes, finance? Each organisation is accountable for its own quality, outcomes finance governance (ie through their CQC registration or provider licence, if they hold one). However the alliance arrangement overlays this a wellconstructed alliance agreement should also set out the governance arrangements between the parties. The subcontract(s) also needs to cover these issues. The alliance partnership board is able to create subcommittees to discharge these responsibilities (including delegated decision-making). Decision-making needs to be considered the subcommittees may need to make recommendations to the alliance partnership board. Alternatively, organisations can delegate their functions to a permitted individual that individual can make decisions (while sat within a 'subcommittee' meeting alongside others with permitted delegations from their organisations) which bind their organisation. One important consideration is the need to manage or avoid conflicts of interest what is best for the alliance versus what is best for the individual organisations. 7 Governance 8 Governance Can the entity be effectively regulated within the current regulatory framework? What are the implications of financial failure of a provider organisation? 9 Financing How can the organisation access capital? NHS Improvement CQC regulate legal entities. Each legal entity is therefore held to account, as per its licence registration. Each organisation is subject to its own respective financial failure regime insolvency for non-nhs bodies trust special administration (TSA) for NHS bodies. Failure of one organisation will impact on the alliance arrangement arrangements for this should be set out in the alliance agreement. Capital is provided by the contract host the financing options depend on the type of organisation. Subcontractors are not necessarily subject to the same regulatory regime as the host. Commissioners need to secure continuity of service for patients service users in the event of insolvency. In the event of provider failure, commissioners are at risk of having to finance a re-procurement if the MCP contract contains no suitable provision to cover this scenario. The ability strength of the alliance to pass risk reward between the alliance members is an important consideration.

15 10 Financing To what extent is the public sector exposed to financial risk? The risk carried by the NHS bodies associated with service delivery under the contract sits with the public sector. The alliance contract subcontracts may distribute some risk among the partners/subcontractors. The commissioner has a duty to ensure continuity of service in the event of provider failure. Considerations include the extent to which the entity can absorb some pressures in year which could come from parent company guarantees, or capital from a private entity. No organisation can cover all losses indefinitely even parent company guarantees reach a limit. Commissioners need a clear understing, before awarding a contract, on a provider s willingness to/tolerance for absorbing loss. The commissioner also needs to ensure that the contracted services are financially sustainable. 11 Business What flexibility is there for moving funds between the different services provided by the MCP? As the contract holder, the host holds deploys a whole population budget this maximises the opportunity to direct use resources flexibly to deliver the contractually agreed service model. Unless suitable provision is made in the subcontracting arrangements, this flexibility may reduce as individual contracts resource allocations are agreed with subcontracting alliance partners. Host contracting may not affect the existing tax status of any of the parties to the alliance. 12 Business What are the corporation tax VAT implications of the legal structure? Providers of healthcare services (other than those listed at s41(7) VAT Act 1994 such as NHS bodies) are unable to claim back VAT on purchases of goods services related to healthcare unless they make a VAT-able onward supply. As a general principle, the larger the consolidation of entities /or activities, the greater the scope for efficiency gains. Each entity retains its existing arrangements. The management of risk reward is detailed in the alliance agreement. 13 Business 14 Business Does the structure affect the scope for efficiency gains? Are there any restrictions on or considerations for profit /or dividends? What are the options for indemnity do these affect the financial efficiency of the organisation? Distributions are subject to any set out in the MCP contract. 15 Business NHS bodies that are parties to the alliance retain their existing status ability to obtain CNST membership. Non-NHS subcontracting parties may be members of CNST for health services (except primary care) where those services are directly commissioned or there is a head contract with a commissioner (NHS Engl or a clinical commissioning group). Where the services are provided under a subcontract, for a non-nhs provider to be eligible none of the other parties above that provider in the contract chain can be a member of CNST. Commercial insurance or indemnity is accessible for primary care any services not covered by CNST.

16 16 Business What flexibility is there to reconfigure how staff are deployed utilised across clinical pathways services? The scope for adopting a single employment model is reduced as staff remain within existing organisations this may limit flexibility to require staff to work across organisational boundaries locations. Flexible deployment of staff is also subject to the employing organisation s existing terms policies. The Cabinet Office Statement of Practice (COSoP) that applies to public sector bodies TUPE rules should be taken into account when longterm arrangements for placements of staff (outside of their employing organisation) are made. 17 GP What GP roles are available in the MCP? Suitable provision needs to be agreed in the subcontracting arrangements contractual alliance. GPs can become members of the alliance partnership board, subcontractors /or employees (ie GPs employed to do clinical work only, geriatricians in GP practice, specialisms away from general practice). 18 GP 19 GP 20 GP 21 GP 22 Employee 23 Employee 24 Employee 25 Employee What GP roles are available to influence the strategy of the organisation? What management opportunities are available in the MCP? What financial risks are GP members exposed to how can they manage them? A variety of operational/clinical roles are available within subcontractors. Strategic/leadership roles are available in the alliance partnership board, its subcommittees management positions in organisations party to the alliance. Existing organisations may retain their own management structures but there may be some consolidation of strategic /or business support functions. GPs could choose to accept risk ( reward). The host is likely to distribute reward from the MCP contract through the alliance agreement based on risk /or terms of subcontract contract. There can be additional or reconfigured management roles (ie where services shift to create efficiencies in the system. The financial sting ( the view of regulators of that sting) of subcontractors will have a bearing on the ability of the host to distribute financial risk. Can partners make a gain? Partners can make a gain but this depends on the alliance agreement. Distributions are also subject to any of the MCP contract. To what extent are staff terms changed? What are the remuneration/pay setting level options for employees? What potential is there for creation of a common set of organisational values, identity, culture purpose? Can the provider access the NHS pension scheme? There should be minimal change to existing employers including staff terms. There should be minimal change to existing employers including staff terms. The scope for this may be reduced by existing organisational values, identities, purpose culture in organisations involved in the alliance arrangement. Under current rules, subcontracting non-nhs bodies do not have access to the NHS pension scheme (including GPs who do not hold GMS/PMS/APMS contracts). The MCP may choose to further integrate workforce structures harmonise employment policies terms over time to realise benefits as set out in the Carter Review. The Department of Health Her Majesty s Treasury, following formal consultation in late 2016, have agreed that clinical subcontractors to MCPs can pension this subcontracting income in line with the current independent provider regulations. This recognises that funding for these services

17 provided directly by NHS stard contract holders would previously have been eligible for the NHS pension scheme, will be on the condition of the use of an approved stard subcontract. Following further consultation in 2017, this change, inclusion of PACSs on the same basis, is expected to be made as part of a suite of broader regulatory changes relating to new care models in October 2017 in time for the first new care model contracts to go live. The MCP can offer the workforce significant opportunities in terms of learning development broader career opportunities to specialise or diversify. 26 Employee What opportunities are there for staff career progression/learning development? Are there any staff sensitivities? Consideration should be given to how staff are encouraged enabled to progress their careers professional skills across multiple employing bodies. 27 Employee There should be minimal change to existing employers, working arrangements or staff terms. The differences in organisations structures, job roles associated pay grading needs to be considered to avoid possible claims, grievances or general co-operation/effective collaboration across the integrated workforce.