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Financial benchmarking: how it can help your practice

BenchmarkingBy Elizabeth Lloyd

How do you know if your practice is as profitable as the next one? Could you and your team improve performance? While your practice accounts will help your GP partners assess their investments in the practice, together with their taxable and pensionable profits, it’s increasingly important for this financial data to be used to plan ahead.

At our accountancy firm we produce an annual GP earnings survey for our clients. As members of the Association of Independent Specialist Medical Accountants (AISMA) we also feed this data into AISMA’s national earnings survey. This gives us key statistics that our clients can use to benchmark their results – both locally and nationally.

Assess overall profitability

A key benchmark is to look at overall profit per full-time equivalent partner so you can judge how you compare with other practices. An AISMA accountant will have data available from the national annual earnings survey to help you compare your practice with others funded in the same way – for example a GMS non-dispensing practice.

The Health & Social Care Information Centre (HSCIC) produces earnings and expenses figures taken from HMRC records. The last available data for 2013/14 assessed average GP contractor earnings at £99,800. HSCIC also gives a split between earnings figures for GMS practices (£96,000) compared with PMS practices (£106,800).

While the gap in earnings figures between GMS and PMS is broadly in line with our own survey results, the HSCIC earnings figures are lower than ours. There is, however, a reason for this. We do not believe the HSCIC prepares figures on a full-time equivalent basis.

Defining a full-time equivalent GP

There are varying opinions on how to define a full-time equivalent GP. Our analysis is that if full-time is counted as a GP working eight sessions a week then there is every reason to be able to explain why earnings are below the average.

When looking at performance in income and expenses, more representative figures will be obtained by drilling further down into the data and calculating on a per patient basis.

Contract income per patient

Earlier this year the BMA prepared a paper to compare patient funding levels with CQC ratings. Using HSCIC data they calculated that practices currently provide a year of care for £141 per weighted patient.

Distinguishing between actual and weighted patient numbers is vital for a practice to understand and a key ratio to monitor since over 50% of a practice’s income is paid on a weighted patient basis through GMS or PMS.

With the phasing out of MPIG and PMS premiums, practices will become more reliant on the effectiveness of the Carr-Hill formula. The formula weights the patient list size by assessing demand through a range of factors such as patient demographics, rurality and mortality. It is known to be flawed when applied to certain populations and is under review.

It’s important to understand how the Carr-Hill formula works for your patient base so, for example, if you have an increasing list size you know your budget for the additional resources required. It may also be useful in a PMS review in order to retain funding or in applying for additional funding for services that meet the demands of your population.

You also need to have a grip on how the phasing out of the MPIG or PMS premium will affect your practice. If negatively you will need to make decisions to ensure the continued financial health of the practice.

Enhanced services

As well as contract income, you should also compare total earnings from enhanced services with those of an average practice. We estimate that enhanced services should represent approximately 13% of practice income. Benchmarking could highlight whether you are maximising all enhanced services or if there are issues with making claims and being paid. Regional benchmarking may highlight local enhanced services that you have not considered that are profitable for other practices.

QOF

Ranking your QOF achievement against other practices will help you identify the domains where you are below average for achievement. We see our practices earning, on average, 9% of their practice income through the QOF.

You can search for the QOF achievement of any practice on the HSCIC website and indeed your own results which will show the domains where your achievement was above or below the CCG and England average and your clinical prevalence.

Check if the prevalence is in line with your own expectations and with other local practices where the patient demographics are similar. It’s possible that the data might highlight disease coding issues in your practice that need to be remedied.

Dispensing and drug margins

If you are a dispensing practice you should have a separate trading statement in the accounts to show your profit from this activity and the drug profit percentage. An average dispensing practice should achieve a drug margin of 30%.

Non-dispensing practices should also monitor the drug profit on personally administered items.

Non-contract income

The AISMA survey has shown a gradual decline in income that practices receive from non-NHS sources, perhaps indicating a lack of time to pursue other lucrative income streams.

Our figures show that earnings from non-NHS income sources are approximately £5 per patient. For ideas on how to maximise your non-NHS income, take a look at the article on the Pulse website written by one of my AISMA accountant colleagues, Luke Bennett.

Expenditure

If you compare your practice expenses year-on-year to only your own data you will not spot if you are spending too much or where savings can be made.

On average, expenditure accounts for around 62% of all practice income. For the earnings survey we produce for our clients, we categorise practice expenses in the following groups:

% of income

Medical expenses  = 11.3

Premises costs = 8.6

Administration & depreciation = 4.5

Finance = 0.9

Staffing (inc salaried GPs and locums) = 37.1

The largest cost for practices is inevitably the staff bill which is set to rise further with increases in employer National Insurance for those staff in the NHS pension scheme and the introduction of the living wage.

With increased demand from patients and recruitment issues getting the right staff skill mix is vital and therefore in our own survey we break down the staffing costs per actual patient for both dispensing and non-dispensing practices as follows:

Non- dispensing

£

Dispensing

£

Salaried GPs & Retainers 8.18 8.46
Locum cover 4.99 2.53
Nursing & Healthcare 11.28 13.48
Dispensing & Pharmacy 6.64
Management & Admin 25.56 24.72
Training & Other 0.75 1.02
 

50.76

 

56.85

If you aren’t currently benchmarking the financial performance of your practice, a specialist medical accountant should be equipped with a vast amount of information to help you get going. To request a benchmarking review from an AISMA accountant in your area visit www.aisma.org.uk.

Elizabeth Lloyd is a partner at Larking Gowen, a member of the Association of Independent Specialist Medical Accountants.

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Practice Index is benchmarking!

Benchmarking is a great way to gauge how you’re doing in various areas. Once the results are in you’ll be able to see how your practice compares locally and nationally. We will collate all of the data so you can clearly see where you’re performing well and where you might want to improve.

Take the benchmarking survey by clicking here.

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2 Responses to “Financial benchmarking: how it can help your practice”
  1. SB Says:

    The problem with benchmarking practice data is that some practices have a lot of salaried GPs and others have none. Salaried GPs count as an expense whereas partners do not, which can massively skew any comparison. Furthermore, some practices use nurse practitioners or pharmacists in roles a GP would have traditionally fulfilled. Again, this can skew any figures massively. All of this makes benchmarking completely pointless. A new approach is required.

    Reply

  2. Elizabeth Lloyd Says:

    The comment above re benchmarking is correct re use of salaried GPs and NP’s which can make traditional comparisons meaningless. Interpretation of the data is key.
    Looking at overall profit per FTE partner is the first assessment of if you are in the right ballpark and what are others doing that could help your profitability. You have to then drill down to look at staff skill mix and spend per patient (perhaps weighted patient) and compare to similar practices in same region.

    Reply

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