The pandemic had a great impact on dental practices, many not performing as expected. However, the dental practice market continues to grow, and many see this as an ideal time to buy a dental practice.
When buying a dental practice that operates under a contract with NHS England (“NHS Contract”), this NHS Contract requires the dental practice to perform a certain number of Units of Dental Activity (“UDAs”). Pre-pandemic, a dental practice needed to perform no less than 96% of its contracted UDAs, and at least 30% by the halfway point in that financial year to fulfil its requirements. If the dental practice fails to achieve this, the NHS could serve a breach notice.
When a dental practice underperforms, and the NHS issues a breach notice, the NHS warns the dental practice of further action it could take if the breach is not rectified. The severity of the action can range from a revaluation of the NHS contract (imposing a lower UDA price and/or volume) meaning the value of the NHS Contract is reduced. Or even withdraw the NHS Contract completely.
These actions are more likely taken where the dental practice has consistently breached its NHS Contract through underperformance over a prolonged period. However, given the current NHS budgets, this could change. The NHS may reduce NHS Contract values based on breaches for only one year, or even where a practice falls just short of its contracted UDA target.
It’s extremely important that when buying a practice, a buyer considers whether there have been any NHS Contract breaches in the past, how many, and whether any breaches could be on the horizon. Post-completion, if the NHS looks to take action for underperformance of UDAs, the buyer will not have any recourse in claiming the underperformance was due to the sellers' actions. Where a dental practice with and NHS Contract has been purchased via the partnership route the performance history of the seller is carried with the NHS Contract, meaning it will be taken into consideration for future underperformance by the buyer.
What does a buyer need to consider before buying a dental practice then? A healthcare lawyer specialising in dental practice transactions will assist you with your investigation's pre-completion. This stage of the transaction is called the due diligence process, where the buyer’s lawyer will ask the seller’s lawyer for NHS Contract documentation such as current pay and activity statement, mid-year statements, end of year statements (from previous years). They will also ask for any breach notices or correspondence the seller may have had with NHS. Through this investigatory process, a buyer can assess the risks of any underperformance at the dental practice.
The risk will depend on whether the breach was a one-off, minimal incident, or a persistent, larger problem. Mitigation of risks will then need be considered in the transaction negotiations. Our specialised dental lawyers can assist through this process and help to protect a buyer in the best way possible. Nevertheless, a buyer should weigh up the risk of reduction or withdrawal of the NHS Contract with how well a buyer could turn the business around post-completion. In the event that the NHS Contract is reduced or even taken away, a buyer needs to consider whether the dental practice is worth its value, and whether it meets their goals.
If you are considering buying a dental practice and would like to discuss the risks relating to underperformance, and how you can protect yourself through the transaction, please contact one of our specialist dental lawyers. Our specialist dental lawyers are ready to help you through this process, discuss your options, and assist you in the best possible way.
