(First published in Australian Doctor Magazine – September 2019)
It’s time to look at big-impact items such as fees, support staff, tech costs and other revenue streams to maximise your profits.
General practice in Australia is blessed and cursed at the same time. Outsiders might see the fact that income is paid in part or in full by the Federal Government is a blessing. However, as GPs know, it is often a curse in that the general public view bulk-billing rate as the ‘appropriate fee’ for primary care. This in turn leads to undervaluing these services performed by highly trained doctors, and governments have not felt the pressure to increase the dollar amount of these items.
Along with the Medicare freeze, this means the income of many general practices has been stagnant for several years and in theory is only just starting to rise again. Unfortunately, the costs associated with running practices didn’t freeze.
How's your profit looking?
One way to determine if your profit strategy is on target is to benchmark your practice against other practices. Most owner doctors will think 'benchmarking' and then immediately consider if medical supplies or electricity costs are too high. This may be the case, but changes to these costs will have a relatively small impact on profit. It would be a better use of the owner's time to change some bigger impact items. These include: the average fees of the GP; the service fee percentage charged by doctors; nurse and admin staff support levels; technology costs; and other income sources.
The obvious cost to look at is the contracting doctor fees, and while these have increased over the past 10-15 years from 60% to 65%-75%, this becomes a supply and demand equation, and pressure on the contracting doctors could push them to find work elsewhere. That leaves three options for either reducing costs or increasing income:
1. Nurse and admin staff
In a perfect world, where nurses are more involved in the patient care, the doctors would be taking less as a percentage of billings to account for the work of the nurses. This would see both the doctor and the practice in a better financial position. However, it is not always a perfect world. Some practices are paying a higher percentage of billings to doctors and those doctors are fully utilising nurses, and unfortunately the practice is then paying the wages of the nurse from their relatively small percentage of the billings income.
2. Using technology to reduce costs
Practices are increasingly investing in systems and technology to assists with not only better financial data on a timeline basis, but also to assist with billing automation between practice management systems and accounting systems, automated patient booking systems, and online payroll and rostering.
This may require an investment in better technology and reporting processes. And if this cost is less than the cost of the wages required to run these systems manually, then this can be a big benefit and a cost saving to the practice. We see this as a big driver in medical practices in the future.
3. Other income sources
Most practices now realise that to succeed in the current environment, they need other sources of income rather than relying on billings alone. This income will not just supplement the practice profits, but in most cases is essential to the practice turning a profit and achieving a net contribution per GP.
As well as government incentives like the Practice Nurse Incentive Program, practices are supplementing their income by renting rooms to third parties. Historically, the most lucrative rent has been to rent to pathology or other medical services; however, this has been reduced with restrictions on new lease contracts entered into after 1 July 2018.
These restrictions will have a significant impact on the other income generated by medical practices. With the pathology and diagnostic imaging incomes potentially reducing when contracts are renewed, combined with the reduction in supplementing of rent from pharmacies a few years ago, I'm throwing the question over to owner doctors - what will replace this income for medical practices to keep the status quo? Will room rental rates to specialists and allied health increase or is there not enough demand to warrant that?
Now is the time to start considering other revenue streams and partnerships in order to maximise profit for the future.
If you have any questions regarding the above, contact Director of Business Services and Tax, Brendan Campbell at bcampbell@prosperity.com.au. Alternatively contact your Principal Adviser.
