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Benchmarking the practice's financial performance

Find out how well your practice is doing by comparing key statistics from your annual accounts with those of other practices, says Laurence Slavin. This article has been updated with figures for 2015 and 2016.

Compare your financial results with those of other practices (Image by Stockphoto)
Compare your financial results with those of other practices (Image by Stockphoto)

Without financial benchmarks to measure your practice’s performance against, it is difficult to know if you are spending enough or too much on the resources the practice needs to function - or whether the practice's NHS and other income is sufficient to develop services and sustain profits.

Don’t just muddle along

Some practices are accustomed to using their income to cover expenses and fund partners’ profits shares while giving little thought to financial planning.

This works reasonably well in a stable health economy, but in today’s climate of major change and squeezed funding such a passive approach may play havoc with practice profitability and lead to having to let some staff go and services cuts.

Get an objective overview

Benchmarking gives the practice an objective view of the ranges of expenditures and income streams that it should expect. It provides a framework for comparison and for understanding if and why your finances differ from other practices and whether this is a problem requiring action to solve.

My firm of specialist medical accountants has been using benchmarking for over 25 years to assess how well a practice is performing. A series of key ratios provide a basis for comparison.

What to benchmark

We use four ratios for the proportion of income spent on practice expenditure, five for practice income and two for the annual profits.

The average percentages and benchmark amounts shown are based on a sample of 211 practices, and 642 GP principals practice accounting years ending in the 12 months to 31 March 2015 and 31 March 2016.

The ratios use core NHS income as denominators:

  • Global sum/PMS baseline
  • Correction factor
  • QOF
  • Enhanced services
Financial performance benchmarks  Average 2015*Average 2016*

1. Percentage of core NHS income spent on practice staff, (excluding doctors - salaried GPs, locum) ie administrative staff, nursing, reception, management

34.87% 33.8%

2. Percentage of core NHS income spent on clinicians/clinical costs: salaried GPs, locums, out-of-hours cover

16.75%

19.61%

3. Percentage of core NHS income spent on administrative expenses: day to day practice running costs excluding staff payroll

8.21% 8.63%

4. Percentage of core NHS income spent on legal & professional services : accountancy costs, legal fees, etc excluding interest on surgery loans

1.56% 1.61%

5. Average total NHS income per patient

 £112.69 £115.36

6. Global sum equivalent/PMS baseline income per patient

 £85.52 £87.43

7. QOF income per patient

 £9.87 £10.24

8. Enhanced services income per patient

 £17.30 £17.89

9. Other income per patient: private & professional fees, etc

 £9.38 £10.24

10. Net profit per patient

 £51.58 £51.22

11. Net profit per partner including the NHS employer's superannuation

 £139,271 £144,080

12. Average list size per partner

2,925 3,015

*Based on figures from 211 practices and 642 GP principals with accounting years ending in the 12 months to 31 March 2015 and 31 March 2016

Source: Ramsay Brown and Partner

How the benchmarks can help you

Any practice can use these ratios to assess its performance and to make decisions on how to re-shape how it operate.

Benchmarking is also a useful defensive tool when a practice is fighting to retain its current NHS funding. Practices are reviewed and judged largely by the volume of resources given to them and not on what they spend.

You do not need to reveal the details of the practice accounts (which are the personal property of the partners), but producing a benchmarking analysis to back up your case is a key tool is justifying the allocation of resources to the practice.

Benchmarking also provides practices considering taking over or merging with another practice and potential partners and a series of key statistics to assist in the decision making process.

Your practice should be able to produce its own ratios to compare with the benchmarks here, but if you need help, ask your accountant.

  • Laurence Slavin is a partner with chartered accountants Ramsay Brown & Partners who specialise in the finances of GPs, www.ramsaybrown.co.uk

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