21 Nov 2023

Financial Strategy Update for GP Practices

With increasing pressure on the NHS, many GP practices are focusing on their financial strategies and reconsidering how they can maintain safe patient care while maximising profits and efficiencies against the backdrop of capacity issues – both clinical and management.

As practices are realising the value of becoming more commercially minded, this is an area where our healthcare team is supporting partnerships to think of themselves as a commercial business whereas historically, practices have focused solely on meeting patient needs. However, the tide is turning. Increasingly, we are seeing many partners and practices looking to more commercial approaches to balance meeting patient needs with efficiencies; capacity and profitability.

For some practices, this can require a shift in mindset and the reassurance that this direction of travel will be beneficial to everyone. This is of course a generalisation and GP practices vary widely in terms of their attitude to commerciality but the more fully practices embrace this approach the better, especially for the long-term stability of the partnership.

At Monahans, we support GP practices in exploring and planning their strategy and helping them to translate their plan into financial targets and goals, identifying ways to streamline processes and putting checkpoints in place to help them monitor their performance against individual objectives.

So, what do commercial GP practices consider?
In order to create a solid financial strategy, GP practices can emulate how a commercial business would approach certain areas - establishing priorities for the financial period and ensuring that all partners are working towards the same common goal, is a good place to start. It’s also worth considering your Primary Care Network’s strategy and whether it harmonises with your practice priorities.

Partners need to set time aside where ideas can be shared and explored and financial priorities for the years ahead are agreed upon - often at an away day. This gives protected time and space for all to be heard and to set the strategy for the partnership which everyone is invested in.

The practice management team needs to actively monitor performance against budgets and this should be reported to the partners regularly – ideally, at least quarterly.

When performance inevitably deviates from budgets, this needs to be explored looking for solutions for how any issues can be addressed – for example, if staff overtime spend is higher than expected, what can be done to reduce the spend over the remaining financial year to ensure that profits aren’t reduced.

Many of the processes associated with commercial businesses are often viewed as less relevant to healthcare, but there are many lessons to be learned from the way that businesses tackle strategy, planning and profits. SWOT analysis for example is an invaluable tool in identifying Strengths, Weaknesses, Opportunities and Threats, matching an organisation's goals and capacities to the environment in which it operates. Commercial businesses review this analysis regularly to ensure that they are creating the best possible version of their business.

Marketing is also crucial. Practices can be dismissive of promotional activities, regarding them as something reserved for a commercial business in order to drive profitability. But far from simply an excuse to blow their own trumpet, marketing is a brilliant way for GP practices to communicate their aims and demonstrate the value of the service offered. For example, targeting a new housing estate to maximise the patients who register with your practice and therefore increase the core contract income being paid to your practice. Being visible to patients is also appealing to potential partners and employees which is incredibly important when attracting people is so tricky.

As with commercial businesses, attracting and retaining high quality talent is crucial to ongoing success. Due to budget constraints, some practices were unable to increase pay above the 6% which has already been offered. But there are alternative ways to improve with recruitment and retention, such as offering flexible and home working options to staff, implementing wellbeing focused initiatives, enacting environmental and social governance (ESG) policies, and understanding the priorities of those you are looking to recruit and tailoring your benefits accordingly.

Financial planning
It’s crucial that GP practices implement financial planning as part of their evolving business strategy, including budgeting, managing cashflow and monitoring financial performance.

Having a good grasp of their cashflow and understanding their financial position will help practices to pre-empt potential issues ahead of time, allowing them to accurately monitor debt recovery, staff overtime and locum budgets, cost out any non-essential work to maximise profits and reduce the number of unknowns on the horizon.

Detailed management reporting is one tool that can assist practices in ensuring that they have financial information in real time, which leads to better decision making ensuring that decisions are in line with the practice’s financial strategy. We spoke previously about the value of tracking and monitoring income and expenses, particularly against the ever-changing backdrop of GP finances and the importance of this remains unchanged.

It’s also worth exploring the range of technology able to help with financial planning and reporting, many of which can complete much of the work on a practice’s behalf or, at the very least, speed up and improve the processes. Tools such as Xero, Lincify or Dext for example, can save processing time and create better quality management reports.

Be aware of…
Tax implications

It’s important to be aware that the profits generated in an unincorporated Primary Care Network (a PCN which has not become a limited company) can have a huge impact on partners’ personal tax bills. Therefore, it’s crucial to understand how your PCN is performing financially as well as being involved in setting the PCN’s strategic goals.

The network exists outside of practices but binds them together. Therefore, if the network makes a significant surplus, this will feed down into all member practices and all partners will likely face a substantial tax bill.

Holding back money for future projects
It’s also crucial that GP practices exercise caution when holding back money for future projects. From HMRC’s perspective, holding onto funds delays partners paying tax on those funds and so we must be certain that any money ‘deferred’ into future years does meet HMRC’s strict criteria – largely relating to whether the funds were given for any specific purpose and if any additional work needs to be carried out in order to retain the income. It is not possible to ‘defer’ income on the basis of ‘committed expenditure’ which is an area that some accountants have been a little more aggressive than HMRC would ordinarily expect in these circumstances.

Some PCNs prefer to hold onto as much money as possible in order to spend it on future projects, or salary costs for example. However, regardless of how well intended this approach is, if this does not meet HMRC’s criteria, partners could be investigated by HMRC and interest or penalties could be charged, so it’s worth seeking professional guidance on how best to navigate this issue.

Pension issues
Partners should ensure that their pension record is up to date or work on getting it up to date as soon as possible. Monahans can support with this, not only acting on behalf of the practice but also liaising with PCSE on a partner’s behalf if necessary.

If partners are affected by the McCloud remedy, there is no need to include a pension tax charge on their pension records this year but that does not mean that no tax will be payable for the 22/23 tax year – forward any info to accountants and financial advisors who will be able to advise on next steps.

Each practice will have differing opportunities and risks that will need to be assessed individually. The support of a specialised healthcare accountant will ensure that each strategic move that GP practice takes is balanced to ensure that the practice is constantly moving towards its goals.

Monahans is supporting GP practices to create the best business strategies for the benefit of partners and patients. For more information, please get in touch.

Iwona Silverio