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Beware of false economies during hard times

Sensible cost-cutting measures in a practice are one thing, short-termism quite another, argues accountant Rosemary Smith

Sensible cost-cutting measures in a practice are one thing, short-termism quite another, argues accountant Rosemary Smith

This year has been a very hard one for general practice, and the tough times look likely to continue.

GPs are having to work harder than ever, services are under review and private providers are waiting in the wings.

Achievement payments have been postponed until the middle of next year, the MPIG has been eroded, new extended hours DES is not paying enough to cover costs, and much more.

We are also in the midst of the most severe financial crisis for decades.

In a recent article in Pulse (‘Take Steps to Cope with the Credit Crunch'), accountant Ian Tongue advised GPs on debt management, rising finance and protecting surgery cash reserves.

Faced with harsh financial circumstances GPs know that good housekeeping is essential. Costs must be cut and work analysed to ensure it is worth the effort.

But excessive cost cutting can be counter productive. Indeed it can damage a practice irreparably.

Take the following scenarios.

Opening up your list

A practice decides to boost income by opening up its list.

Well and good - but be aware that if the income patients are made up of young people moving into new housing, it can radically change the Carr Hill Formula and mean the practice receives less Global Sum.

This has happened to quite a number of practices I know, and has even affected the sums paid for enhanced services as well.

Not replacing staff

Received wisdom is that this will always reduce salary costs.

But often this is not the case, as overtime rates have to be paid to existing staff to cover for sickness and holidays.

This actually increase staff costs rather than reducing them.

In addition staff moral can be badly affected and result in a poorer service for patients with mistakes being made through increased workload and poor moral.

Staff training reduced

Once again this can lower morale. Staff feel they are not appreciated.

And without training they can struggle with new technology and legislation. Thus the practice is damaged further.

Fewer locums used

This will indeed reduce costs. But it will also strain the remaining partners as they struggle with extra work to cover the sessions.

Using fewer locums has got to be a policy decision made by the doctors as they are the ones who will bear the consequences.

A solution may be to introduce more nursing staff. This will cheaper than the locums and not put so much pressure on the doctor's hours.

Practice/service development slowed

This often happens when there is no new income coming in and the same amount of profit has to go further.

But it's the old story – one that is often said about industry: cut back on your R and D and your business suffers.

Fewer partnerships offered

As with using fewer locums, this is a way of increasing profits. But again it will affect the workload of other members of the practice, from the doctors to the administrative staff.

Bottom line

The conclusion is that a balance needs to be struck between short- term economies and the long term health of the practice.

When sensible and constructive cost cutting has been achieved, it is foolish to cut back further.

The wise practice will instead implement a process of ‘toughing it out' for the future.

This might include the following:

• Stop using external Locums completely. Put a strict partners holiday rota in place to avoid overlapping absences

• Stop staff overtime and put a freeze on recruitment. Don't be scared of looking at Redundancy processes

• Increase a full time partners commitment back to 9 sessions per week - or even 10 on occasion!

• Reduce partners holidays to six weeks per year

• Use a Practice overdraft to sustain monthly drawings, paying the overdraft off when the QOF Achievement Payment is received.

Rosemary Smith is healthcare manager with Tenon, the UK's third largest medical accountant

Beware of making false economies during hard times

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