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Practice finance diary, December: How would the funding shake-up affect you?

In his last Finance Diary of the year, accountant Bob Senior discusses the potential changes to practice income if the Government’s plan to scrap the MPIG and rewrite the Carr-Hill formula goes through

The Government’s intention to harmonise GP contracts provided the clue that the days of the minimum practice income guarantee (MPIG) in its current form were numbered.

Some saw the staggered process for PMS funding cuts as an indicator of how the MPIG might be removed. They were therefore caught by surprise by the timescales of proposed changes to the GMS contract announced last month by the Department of Health – changes that ministers have threatened to impose if the BMA does not sign up to them.

Under the plans, GMS contracts would from April 2014 be based on a common capitation price, including a weighting for demographic factors affecting relative patient needs and practice workload. History shows how difficult this weighting calculation will be – witness the infamous Carr-Hill formula, which has never worked as well as it should.

Many GP practices affected by the funding changes would see their income whittled away over seven years as the MPIG is phased out.

While few would argue with the concept of equitable funding, one cannot ignore some of the issues that gave rise to practices needing a correction factor when the allocation formula was last introduced.

Size matters

Probably the most significant of these is that very small practices and practices with split sites are unable to generate the same staffing economies of scale that can be achieved by larger practices operating from a single site. In simple terms, if you compare the staff needed to run a 12,000-patient practice with those needed to run a 3,000-patient practice, you don’t just divide the headcount of the larger practice by four.

Although the contract proposals are focused on GMS practices, they point to the aspiration of the NHS Commissioning Board to follow the same approach for PMS agreements. Given the way in which PMS baselines were calculated, the equivalent of a correction factor is locked into many of them.

The past two years have seen some PCTs carrying out quite rigorous PMS reviews, with the intention of levelling the playing field for funding PMS practices. Sometimes, but not always, PCTs have had an eye on what PMS practices might receive under GMS. Interestingly, this process has not happened in all PCTs, with some effectively ignoring it. Perhaps they saw little point in carrying out a time-consuming review when the whole exercise would have to be redone if GMS and PMS contracts were revised in a year or two’s time.

The introduction of a weighted capitation funding system would find many small practices and branch surgeries unable to compete on an equal footing with larger practices on bigger sites.  Given the number of GPs over 50 already eyeing up retirement, this could be the trigger for many to step down early.

For those left behind in smaller practices, things could prove difficult as they struggle to attract replacement partners.

Some partners could even find themselves in the invidious position of earning less than their salaried GPs and locums. The most obvious option would be to merge with larger practices and close small surgeries, although this is not always possible. Small, owner-occupied practices may be compelled instead to call it a day, hand their contract back, make the staff redundant and sell the surgery for alternative use.

GP partners should talk to their accountants now so that, if this contract proposal does go through,  they have a survival plan in place. 

Bob Senior is chair of the Association of Independent Specialist Medical Accountants and head of medical services at RSM Tenon

Practice funding changes: the DH plans

• The MPIG would be phased out over seven years from April 2014 in order to achieve ‘equitable’ core funding, with the Carr-Hill formula also being adjusted
• A common capitation price would be based ‘on the number of patients [practices] serve with an appropriate weighting for demographic factors that affect relative patient needs and practice workload’
• The GPC has warned that the proposed changes are ‘un-evidenced, unnecessary and destabilising’

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