Income for GPs is in decline, practice expenses are increasing, superannuation contributions are soaring and taxation is on the rise. This means GPs have an increasingly complex set of factors to consider when appointing a new doctor. One in four GPs is now a salaried doctor or locum, and some 76% of sessional GPs surveyed by the BMA in 2010 said they would like to become partners.1 More than 80% of those looking for partnerships said there were no opportunities available in their area.
Prior to the 2004 contract, when income was linked to the number of partners, there were very few salaried GPs. In fact, in 2000 only 555 of the total 26,001 full-time equivalent GPs were salaried. The difference in pay between partners and salaried GPs was minimal and so it made sense to recruit partners to share in the management of the practice.
The new contract shifted the basis of remuneration to the number of patients and so the higher the list size per partner, the higher the GP partner earnings. Between 2004/5 and 2006/7 GP partner income increased by 58% while salaried GPs had little more than inflationary increases. With savings of up to £30,000, it became increasingly tempting to replace retiring partners with salaried GPs, so fewer partners could share increasing profits.
Since 2006/7 GP partner income has been static. With enhanced services being cut and QOF points increasingly difficult to achieve, many GPs find their income is in decline. Expenses have risen with inflation and VAT has increased to 20%, resulting in a continued squeeze on profits. But until now it has still been easier to maintain income by replacing retired partners with salaried GPs. Today, though, the differential between GP partner profits and salaried GP costs is narrowing and what would have been the right recruitment decision two or three years ago may not be right now.
Five factors to consider
There are currently five main considerations at play in deciding whether to take on a partner or a salaried GP:
- Cost per session - Do you know how much a GP partner earns per session in your practice? To calculate this, look at the most recent set of accounts and consider the profit of a full-time partner, excluding seniority and any other specific allocations. Consider whether the historic profit shown in the accounts is still valid. Employers' superannuation contributions should be deducted from the profit and the resulting number divided by the number of sessions worked to arrive at the profit per session. Salaried GPs tend to earn between £7,000 and £9,000 per session with significant regional variations. Add to this, say, 11% to include employers' national insurance contributions. The salaried GP sessions should cost less than the partners' profit per session to reflect the partners' risk.
- Taxation and superannuation -It can be cost-effective to take on a partner rather than a salaried GP to deliberately reduce existing partners' earnings. There are some key thresholds in tax and pension contributions now, and some GPs may want to keep earnings below £100,000 to avoid the loss of personal allowances and a marginal rate of tax of 60%. Top-earning GPs are now seeing tax rates of 50% (reducing to 45% from April 2013) for earnings above £150,000. To bring in another partner, reduce the marginal rate of tax back to 40% and achieve a better work/life balance can be an attractive proposition. Additionally, top rates of employee superannuation contributions for 2012/13 are now 10.9% for GPs earning over £110,274, with further rises threatened for 2013/14 and beyond. It shouldn't just be about the numbers, but partners must know the figures before making recruitment decisions.
- Management - GP partners may want to share the burden of management in the practice by appointing a new partner (who could be from a non-GP role, such as a nurse or practice manager), possibly reducing workload and stress for the GPs. GP partners tend to be more committed and flexible with respect to the workload in the practice and partners often see a salaried GP's role as clinical only. New partners may bring different ideas and strategic thinking, and innovation is an essential requirement of the new commissioning regime. The practice may look to recruit a partner who already has expertise in commissioning, or who could bring new income through a specialty. Such skill sets may enable the practice to increase income from enhanced services and take advantage of new opportunities under commissioning. Having partners can also ease succession planning for partners who wish to retire, especially if a certain skill may be lost when they leave.
- Workforce flexibility - A salaried GP is a fixed cost, irrespective of how practice finances hold up – but depending on the length of the employment contract, salaried GPs can be made redundant if the practice can no longer afford them. Where salaried GPs have been recruited on a fixed-term contract, there should be no redundancy costs if the contract is simply not renewed after 12 months. Typically it is not so easy to cut the number of partners in a practice, and a practice would have to look carefully at the clauses in its partnership agreement before doing so. Usually there would need to be good reasons – such as grave or persistent professional misconduct or bringing the surgery into disrepute – and not simply because the partner was considered too costly.
- Premises ownership - For practices which own their premises, it is not always helpful to concentrate ownership into a few hands. The cost of buying out a retiring partner's share can become prohibitively expensive for the remaining partners if the outgoing partner owns a large share. This also makes it difficult for the retiring partner to realise their investment. In addition, it is often better if all the stakeholders in the business own a share in the building so that all parties have the same agenda when improvements and investment in the premises are discussed. This may become more of an issue over the next few years as funding for GPs to improve their own premises becomes increasingly difficult to obtain, and improvements may have to be funded out of GPs' own finances rather than grants from the deanery or strategic health authority.
The next steps
To sum up, the decision to recruit a partner or salaried GP will be different for each practice. If you're considering the case for a new partner, take the following four steps to assess the options:
- compare the cost per session between a partner and a salaried GP
- list your practice needs, especially in terms of new skills and shared management burden
- consider succession planning and shared ownership models
- assess partners' individual needs in terms of workload, tax and superannuation.
Melanie Thomas is a director of Hall Liddy Chartered Accountants and a member of the Association of Independent Specialist Medical Accountants (aisma.org.uk)
1 BMA. Sessional GP Working Group Report. 2010. tinyurl.com/d5r69xe