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GMS 2012/13 pay award will hit profits

There is only so much cost cutting practices can do and most have done it already, says Laurence Slavin.

According to the latest indicators, inflation is currently running at 4.5% if measured by the Consumer Prices Index (CPI) - the government's preferred way to calculate rising prices - or 5.2% if measured by the Retail Prices Index (RPI).

The GPC and NHS Employers have agreed the GMS contract arrangements for 2012/13. The main features are:

  • 0.5% pay award on the overall value of GMS contract payments to be delivered by adjusting the value of QOF points. As in 2011/12, the idea is that this increase should be paid to practice staff earning less than £21,000 a year.
  • The osteoporosis directed enhanced service (DES) will no longer be available, but the funding for it will be added back in to the global sum.
  • The alcohol reduction DES, the learning and disabilities DES and the extended hours DES will all continue.

QOF framework
There are also changes in the QOF framework but as they are not expected to alter practices' potential maximum earnings from the QOF, I am not covering them here.

But, do not forget, GPs' superannuation payments into the NHS Pension Scheme (NHSPS) are due to rise on 1 April 2012.

For example, the maximum contribution rate that many full-time GPs will be liable for will be 10.9% compared with this year's 8.5%.

This assumes that the rises in contribution rates, which are related to GPs' NHS earnings levels, are not derailed by judicial review of/industrial action over the proposed public sector pensions changes.

What will these changes to the GP contract and the NHSPS mean for GPs' finances? Their impact will vary depending on the practice's circumstances. The table below is based on a real GMS practice with 3.33 full-time equivalent partners and 7,200 patients that achieves above average financial returns from enhanced services and QOF.

If the practice chooses to pass none of the increase in contract funding to its staff and, after taking into account the partners' extra GP superannuation, the practice profits will fall by 2.56% or £10,181.

If it gives a pay rise of 1% to staff, the reduction in profits is 3.29% or £13,105.

If the practice gives the staff an increase in pay to match the increase in inflation as measured by the CPI, its profits will fall by 6.02% or £23,952 - a loss of £7,192 per full-time equivalent partner.

Practices have been used to minimal pay rises and GPs have been reducing practice costs to preserve profits, but there is only so much cost-controlling that can be done and most practices have done it already.

Staff need to be properly rewarded, but if the partners are trying to run the business while the resources it needs are not fully funded, does it send out the wrong message to give staff pay rises while the ship is floundering?

Click here for examples of staff pay rise and a practice's 2012/13 profits

Practice protection
So what can practices do to protect themselves? If the usual exercises on cost mitigation and maximising funding claims are completed, the practice must look at its non-NHS activities as well as at NHS work.

For example, becoming medical officers for a nursing home on a decent-sized retainer (fees for treating nursing home patients on the practice's NHS list are prohibited) would cover the loss in profits and fund a staff pay rise up to 2%.

Increasing the list size by 270 patients will provide enough income to pay the 4.5% increase to staff in the table, but not all practices can do this. And in fact, list cleaning makes a net increase in patients more difficult to achieve.

In these hard times, the real exercise for a great many practices will be to minimise losses rather than maximise profits.

  • Laurence Slavin is a partner with specialist GP chartered accountants Ramsay Brown & Partners, www.ramsaybrown.co.uk.

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