Dr Peter Smith describes how a revamp of his accounting system ensured his practice could plan for the future and ride out some tough financial times
Even with the best of intentions, practices can often spend too much time managing the paperclip budget and too little controlling major expenses.
Back in the mid-90s our PMS practice decided to take a more businesslike approach to our practice finances – and, in this period of wage freezes and the potential for spiralling practice expenses, it has paid dividends.
Despite taking on a new surgery with many more patients, we have been able to reduce our non-staff costs as a proportion of our income and this has enabled us to remain a profitable practice. Here is how we did it.
A new accounting system
If your accounts are only being used to meet legal obligations, you are wasting money and failing to exploit the most valuable business intelligence available to you.
Our practice took an important business decision and on the advice of our accountant invested in the full-blown Sage commercial accounting software package. These kind of systems save everyone's time and the practice money as they process the accounts so they are useable.
Our accountant worked with us to adapt the software to suit a general practice environment. The software often comes with business tools, although we have found that much of our analysis is carried out by downloading the data to a .csv file and viewing it in Excel.
A dedicated member of staff for practice finances
We have an essential member of staff who is responsible for most of the crucial work of classifying and recording every practice financial transaction. It sounds obvious, but it requires an in-depth knowledge of the workings of the practice to do this.
All income is classified according to who paid us and what type of income it is. And all expenses are classified according to who we pay and the nature of the expenditure.
Having spent time and money on systems and on collecting information, many practices still are left making decisions on the basis of annual accounts that include transactions up to two years old.
When analysing accounts the practice can do little more than say ‘that's gone up a bit, that's gone down a bit' from the previous quarter. This need not be the case.
By categorising and monitoring our expenses under seven broad headings, and drilling down as necessary, we are able to compare them even when underlying descriptors have changed. The beauty of this is that, by adding in list size, charts can be produced showing historical trends.
We had a sudden rise in list size when we acquired a branch surgery that became vacant, and profits did not start to pick up again for two years, but we were able to predict and plan for these changes.
The next stage is to forecast expenditure taking into account likely changes (sadly mostly negative in recent years), ascribing budgets to the various expenses and monitoring in-year, making changes where necessary to adjust outturn.
Unsurprisingly, staffing dwarfs other expenses headings, and staff costs have risen steeply. But through strict financial control, non-staff costs barely rose in absolute terms and as a percentage of income actually fell from 16% to 14%. This control allowed us to reduce our total expenses from 57% of income to 50% while raising quality and introducing new PMS developments.
It has also reduced our accountancy fees – a recent independent review found we had one of the lowest levels of professional fees, particularly accountancy, of the 200 comparator practices.
Ensuring efficient use of staff
One of the very early decisions we made was to look at the staffing required to run an efficient practice that would meet patients' needs.
We discovered our own consultation rates per member of staff were below the national average,1 because the number of appointments we were offering at convenient times was low.
With little extra space available – and the PCT preventing us from expanding our practice – we took the decision to pioneer extended opening hours, including opening on Sunday mornings.
A review of procedures for long-term conditions
We are also examining our clinical processes to ensure maximum cost-effectiveness.
We looked at rationalising the attendance of our patients on hypertensive therapy. The default for patients with hypertension was traditionally a three-monthly recall, but guidelines recommend well-controlled hypertensives are assessed from every six months (NICE) to annually (SIGN).
Also, these patients attend the practice even more frequently for other reasons, which is inefficient.
We worked out:
• We have around 1,300 patients with hypertension.
• On a very basic level, if they each attend at least four times a year, that's 5,200 hypertension consultations a year.
• If we reduce this to twice-yearly for patients with well-controlled hypertension, we could potentially save up to 2,600 appointments a year.
Of course, not all of our patients with hypertension are well controlled, but when we looked at the ones who were, we found the potential to save about a third of a GP – the most expensive type of professional we employ.
These changes required agreement across all professionals and involvement of receptionists responsible for advising on follow-up periods. The next stage we will explore is the use of home monitoring, hopefully resulting in the condition being managed largely by the patient.
Carefully costing services
One of the most important uses of our accounts has been to cost the individual services we deliver and look at their added value to the practice. As a PMS practice, this has become even more important as PCTs seek to review our contracts.
At a recent Pulse seminar, some practices said they were too small to introduce these systems – but no practice is too small to benefit.
Dr Peter Smith is a GP in Kingston-upon-Thames, Surrey, and vice-president of the National Association of Primary Care
This article is based on a presentation made at the Pulse seminar ‘In-Depth Financial Skills'. To find out information on other Pulse seminars, go to pulse-seminars.comRecording and categorising expenses can help to predict and plan for changes in practice finances Pulse seminars
This article is based on a presentation made at the Pulse seminar ‘In-Depth Financial Skills'. To find out information on other Pulse seminars click here.Download a service costings calculator
Fightback against your PMS contract review by downloading Dr Peter Smith's template spreadsheet for costing your services and working out their added value for your practice. Download the calculator by clicking here.