Where has the goodwill gone?

Some practice owners may remember that back in January 2006 they owned an asset called ‘goodwill’ valued at 40 to 50% of NHS turnover. This asset has now been misappropriated by the PCTs under clause 12 of the new GDS contract and it doesn’t seem to have caused anything like the furore I for one would have expected until recently.

The theft of a client base built up over as much as 25 years is no small thing. Most dentists have bought their goodwill and are still paying it off. This cost must have been factored into practice expenses in the old system and therefore transferred to the new. Will the PCTs be looking to knock this off when offering your contract out to tender?

Perhaps so, because new contracts are being offered at lower UDA values under the guise of value for money – not difficult to offer if you’re expecting to walk into a ready-made business for free.

Goodwill value has historically been a major part of retirement planning and self-insurance for long-term sickness and death. Most of us factored this in along with NHS superannuation when deciding in our 30s or 40s whether to stay in the Health Service or move to private practice.

It kept many in the NHS in 1990 who would otherwise have left. Now it would seem that the goodwill built up over many years has no value and, perversely, those who have given most to the NHS are in the position of being the greatest losers. There are tales of widows left unable to pass on goodwill because the local PCT refused to award their spouse’s contract to a willing buyer.

Sick dentists retiring through ill health are having their contracts transferred to other practitioners with no benefit to them and at no cost to the new practitioner. A practitioner who suffered a heart attack and needed to retire was told by his PCT that he had breached his contract by being unavailable whilst ill and could not pass it on.

Some associates with personal contracts and dubious morals have walked away with effectively entire practices and set up literally around the corner. They may well not be as smart as they think, because they will soon realise that they own nothing.

It’s difficult to see how PCTs can move these confiscated assets around with impunity, depriving some and rewarding others – they must surely operate to strict demonstrable criteria or be open to challenge with attendant financial consequences. How could an unqualified and un-elected PCT official justify moving a practice from where it has thrived and offered a public service for many years?

So why on earth did the British Dental Association (BDA) let this pass without advising dentists that they were all being robbed? More importantly, however, is it legal? I can’t believe that it is. The situation is that a monopoly contractor put pressure on practitioners to sign these contracts. Practice owners with a sizeable NHS turnover who did not sign could be certain that a corporate body was in the wings waiting to sweep up their life’s work.

A corporate body can pass on its goodwill by virtue of takeover and merger. If this pressure wasn’t enough, there was the letter from the new Chief Dental Officer (CDO) reminding us, as if we needed reminding, that if we did not sign up we would lose future pension enhancement and, of course, dynamisation of our previous contributions. Very serious if you’re over 40 with little in the NHS pot and no time to refill your pockets. The CDO, by the way, with remarkable prescience, had already sold his practice.

Clause 12 will be challenged over the next few months, hopefully with success. Wouldn’t it be nice if the PCTs were forced to reimburse, with interest and compensation, those people whose lives they have ruined?

The last laugh will be on the government and the public. The infrastructure of NHS dentistry relies, like any other business, on there being a negotiable value to that business. Would you be able to buy a freehold practice with a year’s security on your contract? I do not think so. Would a landlord grant a 10, 15 or 25-year lease with a year’s security on your total earnings? Again, very unlikely. Would you be stupid enough to try either of the above? Again, unlikely, and the major dental lenders are beginning to realise this.

Were any dentist unable to sell his or her goodwill for a guaranteed period of time to their successor, they would not wish or be able to sell it at all. No lender would lend money for the freehold and only a madman would pass on a lease when his successor has no security as landlords can, of course, seek out the previous leaseholder in the event of rent default.

Most freeholders would apply for change of use and the D1 use would be lost. D1 is now far harder to get than in the past, involving installing lifts, disabled facilities etc, and who would build or convert premises to such specification with their return on investment dependent on the whim of the PCT?

Gradually, therefore, the infrastructure will vanish and banks and leasing companies will be unlikely to loan on equipment unless we’re in PCT or PFI owned premises with even tighter control, and what would be the point of that? However puny the BDA or the government regulatory bodies may be, I can see a situation where some favoured practices will need to have guaranteed periods for their contracts or no service will exist at all. Other practices wouldn’t enjoy such treatment, and how is that fair or legal?

Either the government has been remarkably stupid or quite crafty – possibly both. If we’re to work out which, it is necessary to look at who may be the winners.

The corporate bodies seem to be feeling most secure at the moment – they’re advertising for practices and groups of practices. Presumably they’ll be spending extra venture capital recently raised to replace the millions they’ve lost over the years. Would this be possible without their favourable treatment under the new contract – that is, would they have raised the capital if the government had not stolen yours and my businesses?

It would be interesting to find out how much input the dental corporate bodies had in the formation of the contract and in particular clause 12. They started buying freeholds in 2004/5 and without clause 12 and the stifling of local competition that would have made no sense at all.

Barry Westwood is a GDP with a practice in Reigate, Surrey. He qualified in 1976.

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