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Options for practices with falling profits

After a number of years of falling income and cutting expenses, what else can practices do to maintain profts? Laurence Slavin considers some options.

Practices have faced falling profits for a number of years now (Picture: iStock)
Practices have faced falling profits for a number of years now (Picture: iStock)

For the last few years GPs have seen their income falling through below average pay awards, PMS reviews and increases in expenditures.

And yet, there is an apparent paradox that suggests that GPs profits have largely been maintained.

It is not difficult to work out why, practices have trimmed costs and GPs themselves have undertaken additional work, sometimes increasing the number of sessions they work.

The net result is the perception that GPs are continuing to make similar profits and so the cuts go on.

So far, the cuts have been painful but bearable, but we are now entering a new phase in which the cuts are not just removing another skin from the onion, but cutting off a significant slice. What can be done to minimise the effect?

Join forces with another practice

There is no doubt that merging with another practice can make significant savings, particularly where the practices can be accommodated in one building.

The savings are likely to be in infrastructure costs and management salaries and possibly a reduction in salaried GPs and locums. This is not without some pain, but safeguarding the future of the practices must be of paramount importance.

Merging or even taking over another practice works best where the partners spread their work over both surgeries, it gives them an insight into both practices and lets them see what is actually happening. Those mergers or takovers where the acquiring practice just puts in a salaried GP to run the practice rarely work.

Things to consider
  • What savings are available?
  • Can the combined list work in one surgery?
  • Ensure partners are involved in all surgeries if you take this option.

Take your pension to maintain income

There is an implication in this article that the only criteria that should be used to decide if a practice should continue is if it generates sufficient profits. Of course that is not always the case and some GPs want to continue with their practice even though the profits have fallen to a previously unacceptable level.

For GPs over 50 years old, it may be worth considering taking your pension early to maintain the disposable income that you need.

24-hour retirement is far more common that ever before, partly because it offers an escape from the pernicious annual allowance charge. The pension will be abated if taken before age 60, and any decision should only be taken after careful consideration, preferably with a financial adviser. However, it might be a preferable lifestyle choice to continue with your established practice rather than looking for a new source of income.

Things to consider
  • Get a pension quotation form the NHSBA.
  • Talk to a financial adviser to get sound advice.

Reduce patient access

This is a controversial issue. Some years ago, a GPC negotiator relayed a story: his patients had to wait more than two weeks to see a GP in his practice. The partners decided to employ a full-time assistant to help improve access, and the waiting time dropped initially to just a week.

Within a few months, the waiting time was back up to two weeks, so the partners decided to remove the salaried GP and let the access times increase to their own level.

Demand on GP appointments is exceptionally high. This may be for economic reasons as much as health reasons, but practices could spend further sums on access with no appreciable reduction in waiting times. Therefore the inverse should also be true.

Cutting access will not make you popular with patients, the CCG or NHS England, but if the survival of the practice is at stake, it may be necessary to consider this as an option.

Things to consider
  • Find out how sensitive the waiting period is to appointments.
  • Be prepared to be unpopular!

Let the practice go

An alternative to the suggestions that look for ways to manage a practice with reducing income, is not to bother – to walk away and do something else.

Unlike other businesses there is no goodwill in general practice so there is no loss of a potential capital value. If GP profits fall to a level where they are comparable to salaried GPs, the advantage of being a principal will have to be matched against the burdens that come with it.

As long as there is no lease obligation, or restrictive covenant, perhaps a realistic option is just to give up the NHS contract. If the GP owns the premises they may be able to rent it out, develop or sell it, and if the patients drift in to a neighbouring practice, that practice might want a locum or salaried GP to help them out.

Things to consider
  • Is the practice viable?
  • Are they any obligations or restrictions stopping you from walking away from the NHS contract?
  • What else could be done with the surgery?
  • What else could you do?

Strategic thinking is key

So the time for some strategic thinking is upon us. How viable will your practice be? If you are PMS, are the key performance indicators accompanying the PMS review achievable? How will the loss of the organisational QOF points and the correction factor affect your finances? Now is the time to start the decision making process.

  • Laurence Slavin is a partner at Ramsay Brown and Partners Chartered Accountants who specialise in the finances of GPs. www.ramsaybrown.co.uk

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