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At the heart of general practice since 1960

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Smart practices will have mapped out a careful business plan for the next few years, says Dr John Couch

One of the few constants of working for the NHS is uncertainty. With more than 12 months of gloomy news surrounding most aspects of nGMS, Q&O/enhanced service payments, GP employer superannuation costs, staff costs and future pay rises (GP and staff) the forecast 20-30 per cent rise in profits seems far from guaranteed.

Smart practices will not sit back confidently assuming significant profit increases. They will instead have mapped out a careful business plan covering the next two or three years. This will include more cautious estimates of growth in NHS income.

If you have not checked your business plan for some time, or worse have none at all, there are several areas that you must consider carefully, including:

·Income projection

·Improving NHS earnings

·Improving alternative earnings

·Optimum expenses level

·Cost-effective spending

·Level of partners' drawings

·Cash-flow

Income projection

Divide income into NHS and non-NHS. Now that a few months have passed, the financial mists of nGMS should be clearing. You should be receiving a constant monthly flow of NHS cash (via GMS global sum/ MPIG or PMS budget), enhanced services and Q&O aspiration payments.

You will also have a more accurate prediction of your final Q&O points total and therefore balancing payment, due in April or May 2005. It is sensible to under-budget by around 10 per cent for the latter just in case QMAS or your PCT spring a last-minute surprise.

To this you can add the recently announced uplift to cover some of the extra 7 per cent employers' superannuation for staff and GPs. This should appear as an increase to monthly sums and £2.50 extra per Q&O point (average three-partner practice).

Use your last set of accounts to project your other income for the next few years. Make adjustments for any known increases or decreases.

Finally factor in known increases for 2005/6 and 2006/7. For instance Q&O points will be worth about 58 per cent more from April 2005.

Compare your projected income for the next three years with the last annual figure on your accounts.

Improving NHS earnings

The scope for improving core NHS income over the next three years is slim. If you have still not settled your global sum/MPIG or PMS budget do not give up. Keep an eye on your list size as there are mechanisms under both nGMS and PMS to increase income accordingly.

If you score below maximum Q&O points this year it is important to raise the sights for subsequent years. Remember that each extra point will be worth over £40 per GP so an extra 100 points are worth £4,000.

Remember also that there will not be any staff uplift next year so increases in staff pay must come from Q&O profits, a double incentive to improve.

Understandably many practices have given enhanced services little or no attention, prioritising core and Q&O income for 2004/5.

It is vital that you maximise enhanced services for 2005/6 and onwards. The opportunity to earn some of this money may not be around much longer as competitive bidding from other providers is being encouraged.

Do not forget bread-and-butter items such as drug reimbursement for self-administered items, which is available to all practices. A well-run system should generate between £1,500 and £2,000 profit per partner.

If you own your premises keep your eyes firmly fixed on the next rent review date. Use an experienced valuer in order to maximise any increase.

Finally make sure you are aware of any other money that may be on offer both now and in the future. Development cash may be the only other opportunity in coming years to improve NHS income.

Improving alternative earnings

The scope for private earnings has never been greater and the out-of-hours opt-out should ensure plenty of fresher GPs. Many GPs now individually take on extra work, with co-op locums being the most popular, in their own time. Some work however, still sits best at a practice level.

Measure carefully the enthusiasm among your partners and the opportunities for new work in your area. Generally, hourly rates have improved considerably in recent years.

Once again do not forget bread-and-butter private earnings. Make sure your patient-chargeable fees are set realistically.

Check that you are still achieving a reasonable level of insurance medicals and look at opportunities for diving, PPL and occupational health examinations.

Optimum expenses level

There is an optimum level of expenditure to maximise profit levels. Spend below this and income generation will suffer. Spend above and risk reduced cost-effectiveness. All practices are different, but an expenses level of around 50-55 per cent is a useful benchmark.

Staff costs are likely to make up more than half of total expenditure and should be a focus. But it is always possible to find other areas where savings can be made without affecting efficiency.

Therefore every category should be checked annually. It is surprising how a few telephone calls can cut costs on utilities, vaccines, stationery, professional fees or insurance.

Check the size of your external locum bill. Could you reduce expenditure by better forward planning or asking partners to do internal locums?

Cost-effective spending

Every pound that you spend should be maximising profit without affecting clinical performance. Your staff costs should be considered first. Make sure you maximise the potential of every staff member. Skill-mix as far as possible.

Extending use of health care assistants, for instance, can reduce expenditure on more expensive nurses.

Also review staff levels, particularly when new technology has saved time and/or staff are leaving anyway. Decide where the next three years' of staff pay rises are coming from. You may also decide on lower pay increases coupled with the introduction of performance-related pay.

Consider if new equipment will save time, generate more income or both. For instance an ECG machine or spirometer could quickly increase profits if you have enough private demand or you did badly with Q&O COPD this year.

Swings in cash-flow

While there is now a more predictable monthly flow of NHS income, paid at an earlier point in the month than under the old GMS monthly cycle, there will still be some swings in cash-flow. Final Q&O payments (April/ May) and GP superannuation balancing payments (September/ December) are probably the largest examples.

Therefore it is vital that you have a cash-flow forecast set up to ensure you stay solvent.

If expected monthly balances are rising you can congratulate yourselves on financial foresight and prudence. A reward to partners will then definitely be in order.

Set drawings carefully

You should not increase drawings levels significantly until extra profits have actually materialised. A good time to review them is in May or June 2005, just after the Q&O balancing payment has arrived. Take accountancy advice if you are uncertain.

John Couch is a GP in Ashford, Middlesex

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