CURRENT CIRCULATION: 7466 DATE: 20th November 2007 ISSUE NO: 151 Welcome to Health & Life’s free email newsletter service. Tell a friend that we would be happy to add their email address to the distribution list. This service is to provide Health and Life’s clients and those who attended our presentations with up to date information on key financial and practice management issues that may affect your practice. Please do not use this as a substitute to seeking professional advice. Writer in charge: Mr David Dahm BA.Acc, CPA, FTIA, Ffin, FAAPM, GLFG.

Team Based Profit Sharing

One of the main reasons for increasing practice profits is that it makes it easier to recruit practitioners such as doctors to your practice. If the practice becomes more viable it has a greater chance of becoming more sustainable. It also helps broaden and increase the quality of your existing services. In our last edition we informed readers of the trend especially in primary health care was towards team based care. New government incentives in addition to alleviating the workforce shortage problems are the key drivers behind this new and inevitable trend. Multi-disciplinary teams are the future of health care practices. We note that even a solo GP practice can lift their incomes by $50k to $100k per annum by implementing one or two of these key schemes. A key problem irrespective of the financial incentives, is that doctors in particular report they do not have the time to implement these changes, or there is too much red tape, or it is hard to get the staff engaged. In this edition we will explore how to share profits amongst your practice staff. It will cost your practice nothing and we will suggest how to share profits fairly when all staff perform above expectations. This is a “win win” solution. Some common comments we hear from owners and practice staff that we hope to overcome from this edition are: “Practice staff are overheads” “The practice staff are not motivated” “It is about me” “I can’t afford to pay my staff anymore” “Training and education is waste of time and money” “It is not viable nor do I have the time to improve my practice” “I wish somebody could take care of my bottom line” “Am I working harder and not smarter?” “How come I am the last to find out – why did nobody do anything earlier about it” In this edition we cover:

1. Can I afford to profit share with my practice staff? 2. How do I profit share with my practice staff? 3. How can I increase practice profits? 4. Where to from here?

Team Based Profit Sharing 1. Can I afford to profit share with my practice staff? The answer is, of course you can afford to profit share with your staff. The real question is does this mean the owner(s) have to take a pay cut? The answer is, of course not. The key is about structuring the arrangement so it is sustainable and transparent. The key is to share profits based on any profit increases from the previous financial year. To argue the business case, ask your boss would you prefer 90% of say a $100,000 increase in profits versus 100% of no increase. The biggest influence on practice profitability is your practice staff. The best arrangements are ones where your staff become your “eyes and ears” and they also reinforce your practice objectives both at the front desk as well as the back office. At the end of the day practice owners want peace of mind knowing that the practice is viable and the staff and patients are happy and somebody else is also looking out for them. Money is an important driver. It can encourage innovation and rewards practice staff for doing courses and implementing changes that will also help your bottom line. This often is the problem with great ideas, 99% of them fall over due to poor execution and a lack of commitment. The whole training session/course becomes a waste of time and resources. The reality is regardless how well qualified you are as a doctor or dentist, practice staff can either make you or break you. The hardest problem is working out what motivates individuals. Clearly financial recognition for effort is universally accepted as a strong influence in improving management outcomes.

We should not forget as much as saying thank you and being a nice employer is also important. The recent interest rate increases due to the international “sub prime” problem and the increased costs of living are having a significant impact on everyone. If your practice could create an environment that was more effective and efficient in the way it runs, then the financial returns including improving staff morale can be much greater than working harder to see that extra patient you have no time to see. This will also make your practice more sustainable because every staff member will be empowered and will have an opportunity to participate in any financial improvements the practice makes. This means there is a real buy into improved practice performance and financial recognition that can only encourage more innovation without you having to worry about it. 2. How do I profit share with my practice staff? We have attached an excel spreadsheet which you can play with that illustrates our Annual Team Based or Project Based Profit Sharing Scheme for your non clinical staff. The principles are straight forward. Any profit that is shared is the increased profit based on the previous financial year or a new project being introduced. So in our example if your practices net profit increases by $100,000 in a given year then 10% of this or $10,000 is shared with your practice staff. The basis of sharing this income of $10,000 is first based on a dual weighting system. The “X factor” is the first component which is a simple criterion that identifies the staff member’s contribution to the practice. See the spreadsheet. Practice owners are expected to rank each staff members input. The second component is based on the salary of each staff members expressed as a proportion to the group. This encourages practice staff to upgrade their skills and qualifications. By doing so they receive a larger share of any profits. Therefore practice staff are encouraged to implement ideas based on their relevant experience, ongoing training and educational background. Only permanent staff that work greater than 12 months are eligible for the scheme. There are rules please read the attached spreadsheet carefully. This rewards all staff for remaining loyal. It is assumed practice staff will continuously improve and apply their knowledge and achieve real outcomes will be receiving higher incomes within the practice. This scheme can be applied to any practice no matter how large and small. It seeks to objectively and fairly deal with paying staff for improved financial practice performance. Therefore the practice can no longer make the excuse it cannot afford to pay bonuses to its staff because it is from new and not existing income that it has generated. 3. How can I increase practice profits? Some ideas include and are not limited to:

1. Selling practice consumables. People are more likely to pay for something tactile like a pedometer or a bandage than paying for advice. They will either pay the local pharmacist down the road or you which is more convenient. Potentially a large practice overhead becomes an asset and income earning opportunity. The average GP can increase practice income by $10,000 p.a., based on cost recovery alone. Ask your staff to wrap charge dockets around the consumables located in the store room. This serves as a good reminder to charge at the front desk when taken out of the stock room.

2. Co-locating complimentary healthcare services and charging a service fee based on a percentage of revenue or

rent. Psychology services in order to take advantage of the mental health care rebates are a good example. 3. Reducing bulk billing by offering an in house safety net scheme where any patient that has more than 10 visits in

a given year will be bulk billed. Each patient should be charged a $10 gap. For a solo GP seeing on average 7,500 visits p.a. this can raise practice net profit by $75,000 p.a. without increasing practice overheads. It also increases continuity of care as it acts like a loyalty scheme. It also reduces the practices medico-legal risks and increases doctor and patient satisfaction.

4. Appointment scheduling during quiet periods for patient health check recalls.

85% to 90% of a general practices overheads are fixed, therefore every additional ‘bum on a seat” this increases a practices bottom line by 90%. Summer time and school holidays are particularly a low period depending on your location and practice profile.

5. Increased utilisation of practice nurses for diabetes, asthma and chronic care and aged care clinics. Using

services like the Practice Health Atlas can help you use your computer system to find patients eligible for these programs and possible revenue opportunities to undertake an appropriate screening program that is specific to your practice. The Practice Health Atlas (PHA) is a decision support tool, designed by the Adelaide Western Division of General Practice, for General Practitioners (GPs), Practice Managers and other Practice staff. The Practice Health Atlas (PHA) aims to inspire general practice teams to reflect on their activities and to develop business models for more effective health care services/outcomes (innovation). It is based on the synthesis of relevant, high quality and timely practice health data, as well as using such data to predict future health care needs and trends (intelligence). Visit http://www.awgpn.org.au/site/index.cfm?display=5462 for more information or call Julian Flint on 08 8244 3822. We have seen on average a practice can increase their practice revenue by $100k p.a. by improving their healthcare screening programs. This does not take a lot of effort if a collective approach is taken by the practice staff and doctors.

All of these examples require the co-operation of practice staff and clearly demonstrate the important role they have in achieving the desired clinical and financial outcomes the practice seeks to attain.

4. Where to from here? 1. Consult your professional adviser in relation to the strategies suggested; 2. You may wish to incorporate the bonus system into your employment contracts to meet any future wage increases in

your Australian Workplace Agreement/collective bargaining or standard employment contracts. We sell template employment contracts for practice managers, nurses and medical reception staff. They also address these types of bonus arrangements as well as provide detailed job descriptions, restraint of trade and confidentiality statements;

3. If you are not sure about any issues raised in this broadcast contact David Dahm on 1800 077 222 for an initial free

no obligation consult, or email us at pa@healthandlife.com.au. Health and Life provides comprehensive practice consulting, accounting, taxation and financial planning advice for group practices and individuals.

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