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The Practice Index Podcast: Episode two – Are practices less profitable than they were 10 years ago?

by in Accounting, AISMA, Finance

There was a headline in the GP press recently that stated that, in real terms, GP partners’ income in 2018/19 was 10% below the figure recorded a decade earlier in 2008/9 (according to “official” data for England). But as is always the case with statistics, averages never tell the whole story.

I know of practices, and I’m sure you do too, that are just as (if not more) profitable today as they were 10 years ago. By the same token, there are others where the partners’ drawings have been reduced by far more than 10%. So why is there such a huge discrepancy between the experiences of practices, all of which are on a national contract?

The answer to this isn’t straightforward. There are external factors, such as estates and recruitment, that have significantly impacted the profitability of some practices more than others. But there are internal factors, i.e. those that are within the control of practices, that are having an impact too.

It was these internal factors that I discussed recently in the second meeting of the Practice Index Practice Manager Panel. We were joined this time by James Gransby, a finance expert from RSM and vice chair of AISMA. What came out of the discussion was fascinating!

On the income side, the panel explained that despite some of the changes to the core contract, there are actually many opportunities for practices to maintain their income at present. Do listen to the podcast episode to find out more. The problem is that these opportunities are much more difficult to access than they were 10 years ago. Practices need to work harder to find them, and they need to work harder to ensure they contribute to the overall profitability of the practice.

A common mistake is for practices to focus on increasing their overall revenue (i.e. maximising income) without thinking about profitability. The other side of the coin, as all practice managers know, is cost. If a practice delivers a service where the costs exceed the income, profitability is going to go down. This might sound obvious, but there are too many practices saying yes to every new service that comes along, without working out whether the practice can actually deliver it without making a loss.

Active cost monitoring and reduction is a key part of the practice manager’s role. On the podcast, the panel talk about some of the different practical things they do to ensure their practices remain profitable.

But for me, the most interesting lesson to come out of the panel discussion was that it isn’t enough to maximise income, or to ensure that the costs of delivery are below the income that’s earned; the number-one tip from the panel is to ensure that payments are tracked, because practices aren’t always paid what they should be – and unless a practice stays on top of this, they can incur significant losses.

Practice managers were important 10 years ago when most practices were profitable. What is clear is that their importance is now even greater, because the profitability of any practice depends more than ever before on the skills and ability of the practice manager and their team.

Author – Ben Gowland, Director, Ockham Healthcare

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Ben Gowland

Ben Gowland

Director and founder Ockham Healthcare, presenter of The General Practice Podcast, supporting innovation in General Practice

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