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Tighter rules for GP premises funding

Medeconomics' premises expert John Hearle highlights the most significant changes to the Premises Costs Directions for practices in England.

The new Premises Costs Directions may mean reimbursement falls for practices (Image: iStock)
The new Premises Costs Directions may mean reimbursement falls for practices (Image: iStock)

The revised NHS (GMS Premises Costs) Directions for England came into force on 1 April 2013.

The main purpose was to make the Directions applicable to NHS England (formerly the NHS Commissioning Board) instead of to PCTs.

However, revising the Directions was an opportunity to grasp the funding pursestrings more tightly and some revisions seem rather harsh.

An example of this is the exclusion of alternate use value when assessing the rental value of existing surgery premises.

If this results in lower reimbursement, GPs with partnership and loan commitments could take a financial hit.

Another change that could lead to losses for practices in leasehold premises is matching the rent they pay their landlord with the amount of reimbursement they get, which has been made much more difficult to achieve. 

Development projects

Projects that need NHS England (formerly PCT) approval now include those that increase the premises' floor area.

From 1 April 2013, approval must also be obtained for sale and leaseback to/from property investors and developers

Applications will not be approved if a contract has been agreed or work has already commenced. GPs discussing sale and leaseback possibilities need to be very aware of this.  

Improvement grants

Amendments to the rules include:

  • That while car parking can be financed, tandem spaces (double-parking) are specifically excluded.
  • Improvements designed solely to reduce the environmental impact of premises - such as the installation of a solar energy system, air conditioning or replacement windows - are excluded.
  • Grants can now cover remote (off-site) electric storage facilities  and specialist floor coverings for infection control purposes.

Previously practices receiving improvement grants had to guarantee their premises would be used for NHS services for up to five years where the cost was up to £100,000 or 10 years where it was £100,001 or more. A new guarantee period of 15 years now applies where the cost is over £250,000.

Remortgaging

A new section covers the situation where GP owner-occupiers receives cost rent (borrowing costs) reimbursement and remortgage at a lower rate of interest.

From 1 April 2013:

  • The practice must apply to NHS England for a reappraisal of its reimbursement level.
  • No cost rent will be paid if a mortgage deficit has arisen as a result of payment holiday agreed with the lender.

Lease surrender

Under the old Directions, PCTs could give a grant towards the surrender cost of an existing lease. Now a grant can be given only if the lease has five or less years to run.

Reimbursement abatement

Under the old Directions, if a practice had used a NHS improvement grant (now extended to cover all grants) to update the surgery, the level of rent reimbursement was abated for 10 years by an amount calculated to exclude the extra value added by the improvements.

The abatement period is now:

  • Five years where the cost is up to £100,000
  • 10 years where the cost is £100,001 to £250,000
  • 15 where the cost is over £250,000

Notional rent abatement to offset income received from private patients and commercial contracts where services are provided at GP premises has been removed.

It appears that practices can now get full notional rent even if more than 10% of their income is from private sources, but the DH is expected to publish further guidance on this.

Current market rent

Schedule 2 in the old Directions dealt with current market rent for rent reimbursement on leasehold premises and notional rent for premises owned by GPs.  

This schedule has been revised and some changes will have a fairly major impact as instructions to district valuers (DVs) for assessing CMR now specifically exclude:

  • Any value applicable to tandem car parking spaces.
  • Any improvements made solely to reduce the environmental impact of the premises such as the installation of solar panels, air conditioning or replacement windows or doors.

GP-owned premises

Before 1 April 2013, DVs could assess the current market rent - and hence, notional rent - taking into account any alternate uses of the property for which it is reasonable to expect planning permission would be granted as well as its use as a surgery.  

The alternate use provision has gone leaving valuers to assess notional rent on the basis of surgery use only.

This may seriously reduce the notional rent levels on, for example, converted residential premises in high value areas where previously the notional rent could be based on the often much higher alternate use value as a residential letting.

Lease changes and reimbursement reviews

Before 1 April, with leasehold premises the amount of rent reimbursement could be altered only if the lease rent paid by the practice changed.  

Now a reimbursement review can be triggered whenever there is any change to the lease terms - not just when the  rent level changes.  

For example, GPs extending the length of their lease in return for the landlord undertaking improvement works will be caught by this.

Lease rent agreed before reimbursement level

A controversial change for practices in leasehold premises is that, before the current market rent is reviewed for reimbursement purposes, the landlord and the practice must now agree in writing a new lease rent

It will no longer be possible for the DV to assess the rent first and for the landlord and the practice (subject to negotiation) to then agree to make the DV's figure the lease rent.

GP will now have to instruct their own valuers to act on their behalf to fully negotiate the rent with the landlord.

Potentially they could end up with a discrepancy between the level of lease rent negotiated and the level of rent reimbursement the DV  deems appropriate. 

Professional advice from health sector specialist valuers could go a long way to eliminate this risk, but practices will have to pay for this.

More minimum standards

Previously when PCTs reimbursed rent they had to ensure that the premises met the minimum standards set out in schedule one of the old Directions.  

When serving a remedial notice, a PCT had to give the GPs six months to meet the minimum standard. This has been reduced to ‘no more than three months’ notice’ unless NHS England deems a longer period is required.

There are new, contractual standards including having adequate procedures for ensuring the continuing safety of practice premises via risk assessments, decontamination and infection control and so on.

This in addition to the statutory minimum standards covering Equality Act 2010, fire precaution provisions and various other specialist regulations.  

  • John Hearle is chairman and head of healthcare at Aitchison Raffety and joint chair of the Primary Care Premises Forum.

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