Investing in the future: running an audit
In the first of three articles on protecting practice income, Dr Paul Charlson explains how to analyse your core practice finances
Competition between practices is going increase, and it pays to think ahead – practices that plan for the future will be able to attract the best staff and provide better patient care. Indeed, it may be that we will see quite a few mergers in the next few years as some practice find survival on their own difficult.
Public-service pay is unlikely to increase over next few years. Accountants estimate that ‘aggressive' reviews of LES funding contributed to a further slide in GP profits in the 2011/12 financial year, estimating an average fall of up to 5%. The increase in pension contributions, although an investment, will also hit take-home pay. Most practices receive their income from block payments based on list size and the rest from performance-related NHS payments – for example, the QOF – and additional service payments. Chances are that most are maximising their income from these activities. If they are not doing this, perhaps they should be asking why not?
Talking to colleagues, many practices have not performed some obvious and simple accountancy exercises to see how much each income earning opportunity costs. I am constantly surprised how often practices do not know how much it costs to provide a DES or LES, or to achieve QOF points. The latter can be more difficult to calculate, but if you are missing some points and thinking of trying to achieve them, the cost calculation is fairly easy. This represents a good starting point to a more detailed review. It may be that a practice wishes to offer loss-making services because they provide a valuable patient service. However, the exercise allows an understanding of the monetary worth of services.
The next project might be to analyse the hourly rate of all staff, particularly clinical staff. Partners are expensive commodities. An evaluation of outside interests such as training, CCG work and other revenue-earning opportunities can be then made in a considered way.
For instance, if a partner receives £300 for an afternoon of CCG work, how much does it cost to replace them for that afternoon, and is this a cost-effective use of their time and your resources? An average GP on, say, a total income of £120,000 per annum for eight sessions per week earns about £650 per day, taking into account holidays and days off – so this might not be a cost-effective use of their time. A loss is not a disaster if the benefits of doing the work provide something useful other than income., but the exercise of finding out the cost is always worthwhile.
List size is also worth considering. How much income does the average patient generate and what does it cost to provide them with care? This informs the future development strategy and can help you decide whether expansion is worthwhile. It might even be worth taking over another practice, although this is certainly not for the faint-hearted.
The starting point of future planning is to consider existing income streams and perform a cost-benefit analysis. It is all too easy for everyone to be ‘too busy', but every practice should set aside time to do this type of exercise regularly.
The conclusion may be that a partnership is happy with the situation it is in. It accepts a slowly falling income and adapts, which is a perfectly acceptable approach.
The problem with partnerships is that the circumstances, aspirations and attitudes of partners are different – as what suits one person may not suit another – and this creates tension. Partnerships need to acknowledge these differences and instead of trying to fight them, they should be embraced.
When the day job is looking after the NHS list, it pays to put a financial value on each clinical session. This allows for partners to decide how much face-to-face work they want to do and negotiate. It is not easy, but it facilitates discussion.
· Look at the ways the NHS is changing nationally and locally.
· Run cost-benefit analyses on your outgoings and income streams, including
o the DES, LES and QOF work your practice undertakes
o staff costs
o rate of list growth.
· Consider how your financial environment affects your business plans.
· Consult your partners on how many sessions they want to do going forward.
Dr Paul Charlson is a GP in Cumbria