Reviewing PMS contractual agreements


Guidance for PMS practices (England only)
March 2007 This guidance note sets out the options available to personal medical services (PMS) practices when primary care trusts (PCTs) seek to review existing contractual agreements. This is an update of the General Practitioners Committee (GPC) guidance issued to PMS and alternative provider medical services (APMS) contractors providing essential services in April 2006. Whilst this is specifically an England-only document, the principles can be applied to non-general medical services (GMS) contractual options in all four countries.

1. Background
There are an increasing number of cases of PCTs threatening PMS practices’ budgets under the guise of not providing 'value for money' or because they claim to be “reconfiguring” primary care. This includes PCTs seeking to renegotiate aspects of PMS contracts to extract sums from the baseline and setting new targets and expectations. If practices do not comply with these changes, PCTs are threatening to terminate contracts and proposing to offer ‘new’ contracts (either APMS or a return to GMS, the latter on very disadvantageous terms without minimum practice income guarantee (MPIG) and/or with removal of any growth monies).

The GPC has encouraged affected local medical committees (LMCs) to stress to PCTs that going down this route is likely to destabilise general practice and provision of health care to patients in the local area further and has asked to be kept informed of any further moves in this direction. Whether, or in what timescale, contracts can be terminated will depend on the terms of individual contracts, though it is possible, under the PMS regulations, that this threat could be implemented. Additionally, as there is no national guarantee of a GMS-equivalent MPIG, the GPC strongly advises that all LMCs seek to make financial arrangements with the PCT to allow for this if a return to GMS does occur. Further guidance for LMCs on how best to achieve this is detailed in part 4 of this guidance.

The GPC is also aware that the Government is undertaking a review of PMS funding, as detailed in paragraph 3.31 of the White Paper ‘Our health, our care, our say: a new direction for community services’. Results of this, as yet, have not been seen by the GPC although LMCs will be informed as soon as the details of the outcome of this review are known.

2. Relevant Department of Health guidance
In March 2006 the Department of Health published guidance on non-GMS contracting arrangements for 2006/07 (England only). Please visit the Department of Health website.

This sets out the implications for PMS practices and GPs holding APMS contracts for essential services in light of the changes that were negotiated to the GMS contract for 2006/07. It was intended to support PCTs and strategic health authorities (SHAs) in securing similar arrangements to those agreed for the GMS contract for 2006/07, from local PMS and APMS contracts. This was released with an accompanying direction from the Secretary of State that required PCTs and SHAs to review local contracts and seek to constrain payments made under these in line with the 2006/07 GMS contract. Please visit the Department of Health website for the direction.

The GMS negotiations were conducted in a particularly difficult environment. There was considerable pressure not just to limit any future pay awards but to try to secure better value for money from the 2004 GMS contract. The guidance on non-GMS contracting arrangements for 2006/07 indicated the Department of Health’s intention to do the same with PMS agreements. Particularly the guidance was to ensure that PCTs encouraged PMS practices and GPs holding APMS contracts for essential services to engage in the new directed enhanced services (DESs) that assist with the delivery of key areas of government policy.

This Department of Health guidance does not apply to PCT Medical Services (PCTMS) however, where there are implications for these contracts, these are set out in this GPC guidance.

3. Historical evolution of PMS
Practices moved to PMS from GMS for three main reasons – in many cases for a combination of these reasons. First, there were the so-called “leading edge practices”, often former first-wave fundholders, that wished to adopt new policy developments and genuinely wanted the freedom to develop their practices which PMS gave them. Second, and these probably form the bulk of PMS practices, were those that responded to the financial incentives that accompanied transfer to PMS and because there was considerable local encouragement and pressure from the government to move to PMS. Third are those that moved to PMS out of necessity because there was not the flexibility under the Red Book to survive the problems of failing to recruit partners etc. For many, if not most of them, had nGMS existed at the time, they would not have moved to PMS and an acceptable return package to GMS would encourage many to revert.

3.1 Equity between primary medical service providers
Although there is evidence that PMS practices have higher per patient funding when compared to similar GMS practices, it is necessary to consider the overall services provided and the workload of individual practices, when making comparisons rather than simply looking at crude £ per patient calculations.

Some PCTs are already looking at how list size change generates different amounts of income between GMS and PMS and assessing how they can bridge the gaps when funding inequalities exist. Practices and LMCs are reminded that, if differences in funding are introduced, it should be done in an open, transparent and fully consultative way and everyone should understand any new process from the outset. This is especially true if there are likely to be financial losers under new arrangements. It is recognised, however, that both within and between primary medical service providers of essential services there are likely to be historic inequities that practices will need to bear in mind during discussions.

GPC policy is to strive for equity of funding between all primary medical services contracts for essential services. However it seems unlikely that any funding that is removed from PMS practices will directed towards levelling up practices that are historically less well funded. In dialogue with PCTs, practices and LMCs should resist attempts by PCTs to introduce extra services and reduction in funding unless these can be fairly and transparently justified.

PCTMS practices should also note that the case for equity for all primary medical essential services would equally apply.

4. Options for PMS practices facing contract renegotiation or threat of termination
As part of the funding review it is expected that PCTs will seek, at the very least, to make amendments to PMS contracts to secure similar changes to those outlined in GMS. The Government’s intention was that PCTs should review PMS contracts to ensure they are providing 'value for money'. It is inevitable however that the final balance between actual levels of efficiency and new investment will vary between practices depending on local contract discussions.

Practices in this situation have, at least, four options:
  • Seek to retain current contractual status with no changes
  • Renegotiate PMS contracts
  • Transfer back to GMS
  • Transfer to a new, locally-negotiated, APMS contract
Further details of each of these options are set out in part 4.1 – 4.4 below.

4.1 Seek to retain current contractual status with no changes
This option seeks to maintain the status quo and may not be viable if the government are serious about reviewing PMS contracts. It also may leave contracts open to the threat of termination although, as detailed in part 5 of this guidance, the legalities of termination are unclear.

4.2 Renegotiate PMS contracts
This option would require involvement of LMCs and whether it is acceptable would largely be dependent on the extent of the changes proposed. Issues that PCTs are likely to wish to consider are listed below.

4.2.1 Growth money
An area that some PCTs have stated a wish to investigate is the use of PMS growth monies. Many PMS practices and some GPs holding APMS contracts for essential services were allocated growth monies when they first entered PMS or APMS arrangements. This money was intended to be used to employ additional staff, or to improve or restructure services. Some PMS practices and GPs holding APMS contracts for essential services have now been asked by PCTs to justify the use of this money. Practices are therefore advised to consider collecting evidence of how their growth money has been used appropriately.

It should be recognised however that PMS growth monies had relatively little guidance attached to obtaining them at the start, and what guidance there was focussed on bidding for money rather than justifying spending. Therefore it seems unreasonable that practices may now be expected to fully justify what the money has been spent on. The original growth money was primarily to fund doctors or nurse practitioners specifically; however, in April 2004, growth monies were made permanent in the baselines and had new flexibilities over how they could be used.

Some practices may have agreed a plan about how growth money should be spent at the time of opting to move to a PMS contract. If so, it would be worth practices looking over this to ensure that they have kept to their side of the agreement.

4.2.2 Value for money
Some PCTs have also tried to seek a higher level of service from practices, or an opportunity to cut the costs of PMS contacts. For example, some PCTs are insisting that PMS practices and GPs holding APMS contracts for essential services take on additional patients for no extra funding. Others are seeking to claw back money where they do not believe that the practice has provided enough services for patients – providing evidence of services that have been provided will be of paramount importance. For PMS practices and GPs holding APMS contracts for essential services, growth in list size is an issue, especially for the later waves of PMS as allowances for an increase in list size will be largely dependent on local contract and negotiation. This may be an area that the PCT will wish to revisit and for which practices will need to be prepared to demonstrate value for money.

Furthermore, PCTs are setting out new targets and expectations. PMS practices and GPs holding APMS contracts for essential services do not have to agree to such arrangements but should consider the merits of doing so when making overall decisions about whether they would be willing to consider changes to their contracts.

4.2.3 Historic contracts and superannuation clauses
Some new PCTs may want to standardise variable contracts that had been agreed by former PCTs. In particular, many may want to remove clauses that are seen as disadvantageous to the PCT. In particular some PMS practices have a superannuation clause in their contract to allow for full 14% employer superannuation contributions to be paid by the PCT. Many PCTs believe this provides an unfair advantage to PMS practices over GMS and are seeking to review these clauses. PMS practices should seek what is due to them under existing contractual arrangements however practices and LMCs should be mindful that, for future contracts, this may be a clause that is difficult to defend when compared to GMS practices.

4.2.4 Justifying funding and contractual change
Unless there is an explicit statement set out in the contract to state otherwise, PCTs cannot claw back funding retrospectively. However practices and LMCs should work to ensure that funding is not withdrawn for the future. Taking into account the above paragraphs, it is recommended that a process is put in place that takes into account the following:
  • PCT and practice needs to be clear why any use is considered ‘not appropriate’
  • PCTs need to give support to state what they would find ‘acceptable’
  • there should be adequate notice/change period time for the practice to make the necessary changes, and without any adjustment to funding.
  • changes must be discussed and agreed by both the practice and the PCT.
When considering the above points, and looking at their PMS contracts, practices should identify precisely what was agreed. Practices should be aware that there may be some situations in which they have been unable to provide a particular service due to circumstances beyond their control (for example based on PCTs developing certain initiatives that were never delivered) and that, in this situation, PCTs cannot try to claw this money back.

4.3 Transfer back to GMS
This would require the negotiation of fair and equitable rules for the transfer back to GMS from PMS and, in particular, the entitlement of PMS practices to the equivalent of an MPIG and clear guidance on how to deal fairly with the issue of growth monies. This is not a simple procedure and an MPIG may be more difficult to calculate the longer the PMS contract has been in operation. The GPC has made repeated attempts to convince the government that to negotiate a national agreement would be in their best interests but this has been without success. It also seems unlikely that the government will agree to protection of PMS practices’ income at their current baseline rate, including growth monies, particularly as this review of PMS is seeking to make financial savings for PCTs.

4.3.1 Negotiating movement between PMS to GMS contract
Before 1 April 2004, individual doctors had a right of return to GMS. Under the PMS Agreements Regulations, this right now applies to contractors, rather than individual doctors. Return to GMS is therefore now a practice decision (see part 6, Regulation 19).

The contractor must notify the PCT that it wants to enter into a GMS contract three months before the date on which it wants the GMS contract to take effect. The notice to the PCT must specify the date on which the contractor wants to terminate the PMS agreement, the names of the persons with whom the contractor wishes the PCT to enter into a GMS contract and to confirm that those persons meet the relevant conditions (as set out in Regulations 4 and 5 of the GMS Contracts Regulations).

There is no agreed formal mechanism for determining the financial position of PMS practices and GPs holding APMS contracts for essential services who wish to enter into a GMS contract. Whilst these practices have no statutory right to a Minimum Practice Income Guarantee (the income protection guarantee that GMS practices had on transfer from the old to new GMS contract), John Hutton’s October 2003 letter to PMS GPs stated:

‘A PMS pilot practice could make a strong and robust case for having an MPIG from 1 April in discussion with the PCT. The practice would be expected to provide the data which could be assessed by the PCT using:
  • the local data on payments for Global Sum Equivalent (GSE) items that they may have available for the pilot; this might include some or all of growth monies relating to contract variations forming part of the practice’s Global Sum Equivalent
  • a national average calculation (if the supporting data are not robust enough to do the calculation) based on PMS earnings and GSE’.
There is no automatic entitlement to retain growth monies on movement to GMS. However, the Hutton letter stressed that this should be allowed ‘where a practice provides evidence that some growth should form part of the GSE’. If the growth money is retained, the PCO may use it for the benefit of patients across GMS and PMS practices.

Practices would need to demonstrate that they have invested growth money in services as this will make it more difficult for the PCT to remove the funding. Practices that cannot show this are likely to be the most vulnerable.

Although each practice is different, PMS baselines could be generally thought of as the equivalent as a GMS practice’s MPIG. When negotiating on the issue of MPIG and the future of growth funding, LMCs and practices should consider the following funding streams, and the services provided with the money, to ensure fair transfer of resources:
  • PMS baseline
  • rents and rates
  • growth money
  • enhanced services
  • impact of the QOF points reduction.
Under section 96 of the NHS Act 2006 it is possible for a PCT to provide assistance or support to any PMS contractors when a negotiated element to compensate for the absence of MPIG has been agreed. There is some further guidance on this in section 6.12 of ‘Sustaining Innovation through New PMS Arrangements.’

Although PCTMS practices do not have the right the return to GMS, the GPC expects that GMS GPs who went into PCT-run PMS practices and are now PCTMS should be treated fairly and should have the opportunity to re-take over their practice if desired.

4.4 Transfer to a new, locally-negotiated, APMS contract
This is similar to option 4.3 but LMCs, and practices, would need to be well informed and would require buy-in of APMS from practices. One concern with this is that it would open up the services being provided by the practice to the patient population for tender with no guarantee that the PMS practice would be awarded the contract. There is also no guarantee that similar problems would not arise in the near future when APMS ceases to be the government’s preferred option. It is also unlikely that the same amount of funding would be available as changing the contractual status of the practice would only make sense to the PCT if they are going to save money. The GPC has already produced guidance on APMS which is available to members - go there now.

5. Contractual and legal issues
5.1 Can PCTs alter contracts without agreement?
Existing contractual provision is based on an agreement jointly-entered into, and changes to those arrangements may only be achieved through proper consultation and negotiation with practices. That means additional efficiencies over and above those currently within the contract agreements can only be achieved with the agreement of the practices concerned. This is covered by schedule 5, part 8 of the National Health Service (Personal Medical Services Agreements) Regulations 2004.

Additionally, there have been reports of PCTs seeking to claw back payments from PMS practices. PMS practices should resist such moves and note that contracts cannot be amended retrospectively unless there is anything specific stated in the contract that would allow for this.

5.2 Can existing contracts be terminated if agreements cannot be reached?
Because each PMS contract is negotiated locally, there are likely to be many differences between the termination provisions in individual agreements. It is therefore not possible to give universal advice to PMS practices and GPs holding APMS contracts for essential services. However, the GPC legal department has considered this question in the light of the regulations and existing model contracts.

Its view is that the PMS Agreement Regulations 2004 (schedule 5, paragraph 100) are unclear on the subject of termination. These regulations state that either party may terminate the agreement by serving notice in writing but they do not specify the notice period, nor do they specify what, if any, reasons may need to be given for termination. Like the regulations, the majority of PMS agreements replaced after 1 April 2004 also fail to specify a period for termination of the agreement by notice.

It is widely assumed that when PMS became permanent on 1 April 2004, PMS contracts became permanent. GPs should be aware however that there is a possibility that PCTs wishing to terminate PMS contracts without cause may seek to use the regulations to do so. In the event that no clear notice period is set out in any agreement between the practice and the PCT, due to the local nature of contracts, it is not possible to say whether it would suffice for the PCT to issue a reasonable period of notice and then to allow the contract to be terminated without cause. Practices should be aware however that the PCT may well try to terminate without cause on this basis.

It is clear that the Department of Health may wish to use this as a threat as demonstrated by paragraph 9 in their March 2006 guidance which states ‘If PCTs and SHAs are unable to reach agreement with such contractors, they will need to carefully consider, taking legal advice where necessary, the continuing appropriateness of the existing contract they have with that provider.’

LMCs should however draw the attention of PCTs to annex G of the ‘Sustaining Innovation through new PMS arrangements guidance’ available on the Department of Health website.Whilst this states a number of reasons why a PCT could terminate a PMS contract, including breach of regulations and specific changes in the structure of a partnership, it does not support termination of PCT contracts by the PCT without cause. However, the situation has not been tested in law and to do so may involve consideration of a legal test case, as necessary, to try to clarify the situation.

5.3 What can PMS practices do if they think their contract may be terminated?
PMS contractors are potentially vulnerable because of the regulatory provisions which may enable PCTs to terminate PMS agreements on notice (see above). This sets PMS agreements apart from GMS contracts and may give the PCT sufficient leverage over the practice to impose changes.

Practices should first check their own contracts to note whether any notice period for termination has been included. If no notice period is included, the practice is in a far stronger negotiating position. Unfortunately, if a notice clause is included, which provides for termination on a specified number of months notice, the PCT may be able to terminate using the stated time period.

Practices in this position would have to balance the possible disadvantages of accepting contract variations against the risk of the PCT attempting to unilaterally terminate the contract. The GPC would hope that mutually acceptable compromises could be achievable through negotiation, with the assistance of the LMC. If they are not, the contractor may wish to exercise its right to return to GMS (see section 4.3).

Practices are reminded that they may invoke the dispute resolution procedures in their agreement, as most PMS practices will be recognised as NHS bodies for the purpose of the agreement. This includes the opportunity to have local resolution but if this is unsuccessful practices may appeal to the Family Health Services Appeal Authority (FHSAA) in Harrogate. If a practice holds a private law contract i.e. it has not elected to become a health service body, it can choose to use either the NHS dispute procedure or use the Courts in relation to any particular dispute. Practices can, at any stage, opt to become, or cease to be, a health service body, by requesting a variation of their contract with the PCT.

6. Role of LMCs
PMS is a local contract and the role of the LMC is a particularly vital one in such cases. There is also considerable potential benefit to PMS practices if they act together, under the guidance of the LMC, rather than allowing themselves to be picked off, individually, by the PCT. LMCs can support PMS practices by advising practices on the options available to them and helping them make the best decision. One way is to assist with negotiations locally with the PCT to agree an acceptable contract deal if this is agreed as the most appropriate way forward. LMCs should be able to provide advice on what are acceptable changes and what are not. This needs to be a local decision and may vary from practice to practice in an area. In general it may be reasonable to look at fringe issues to avoid the risk to the core contract. It is of course possible that some practices will wish to make the move back to GMS if that is deemed a better long term option and the LMC could also assist with these negotiations. If a threat of termination is issued, this is likely to alarm and distress practices in the area and both LMCs and the GPC should offer support in this situation.

As a starting point, LMC should consider the following actions. Many of these are already currently being undertaken by LMCs.
  • provide support to practices in difficulty with their contract
  • offer assistance with negotiating with the PCT and SHA
  • offer to act collectively on behalf of practices if appropriate
  • provide a realistic view on when to accept a wise agreement with the PCT
  • advice on alternative contractual options.
Most LMCs provide these services as matter of course to GMS practice and should offer the same level of service to levy-paying PMS practices, as well as considering what, if any, support they can offer non-levy paying practices. LMCs may have to create additional resources to do this since this work may not have previously been included in their budgets. The GPC is aware that threats of mass termination of PMS contracts have been withdrawn in some areas following LMC involvement so it may also be valuable for LMCs to share experiences with each other. A further consideration is that PCTs will not want to be shown up as destabilising practices so involvement with the local press, patient groups, local councillors or MPs could be an option.

It is also important to ensure that all GPs, both GMS and PMS, unite on this issue, particularly on the issue of destabilisation of health care to patients in the local area, as this will not allow PCTs the opportunity to divide and rule GPs in the area.

7. Key messages
  • Termination of all PMS contracts in an area will create destabilisation of general practice and health care provision for patients in the local area. Practices should use all lawful contractual means to protect themselves.
  • Where individual practices are being picked off, this should be resisted. This can be achieved through individual practice, LMC, GPC, legal and publicity-based action. LMCs are best-placed to monitor and intervene, provided practices actively seek their assistance. Under such circumstances, LMCs should ensure that practices are fully involved in understanding the negotiating boundaries and risks. They should also seek to encourage a united and coordinated approach to any threats.
8. Further information requested
The GPC continues to monitor the situation with regard to non-GMS contracting arrangements. Therefore we would be grateful if LMCs and practices could provide information on the following two points:

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