A tale of two stockings

Virginia McMillanvmcmillan@clear.net.nz

News

THE GP INCOME ISSUE

Will the Christmas stockings be packed with goodies this year or hanging empty?
Liane Topham-Kindley takes a look at recent trends in GP remuneration and finds them to be a bit of a mystery - much like the puzzle of who fills the stockings in the first place

Cash is flowing into general practice as new owners snap up medical centres but, in the new acquisition era, GPs are not seeing their wallets get much chubbier, or are they?

New Zealand Doctor went looking for objective data and found some mixed messages, but the news was not particularly encouraging for those hoping for better times.

On one hand, the University of Waikato Business Bench­marking Survey for 2010 shows both increases and declines.

In the Medical Assurance Society's annual report on GP locum and associate remuneration, rates are increasing.

And, in the New Zealand Doctor/IMS HEALTH faxpoll, a year of mixed financial fortunes emerges (see panel story).

Pam Newlove, director of Auckland accounting firm Grant Thornton, has GPs on her books and says, on average, for the year ending 31 March 2011, their gross revenue is either stable or trending down by 5 to 10 per cent.

She considers the economic recession is starting to bite. "Earlier in the recession general practices were not really seeing any significant financial impact on their results.

"A lot of people felt health was resilient in the recession, but as time goes on the impact on patients is greater. People are losing their jobs and they start to make decisions about whether they see their GP or not."

Generally, Ms Newlove says costs of operation - power, phone, IT and medical supplies - are all going up against falling or stable revenues.

"Well-run practices can sometimes buck the trend, but in general I think now, for the first time in a while, general practices are starting to feel the impact of the recession."

However, a partner in Deloitte's Christchurch office, Shari Carter, who also has GP clients, says she hasn't seen a noticeable decline in revenue. "Rather, revenue levels seem to be holding steady and in some cases increasing slightly.

However, there is often still a reluctance by GPs to increase fees out of concern for patient well-being and affordability."

Of course, the last year has been out of the ordinary for Christchurch with the earthquakes and Ms Carter expects this will have an impact on revenue for some practices. Relocation of patients from residential areas that were badly damaged will also have an effect over time, she says.

The Waikato research has two relevant surveys for general practice, one classified "medical centres", which tends to include mostly larger practices and, the other, classified "medical practitioner-general", covering more single or two-person practice owners. The university says there is no clear definition for either category.

Thirty-one participants provided information in the medical centre category, which showed the net profit per working owner for the 2009-10 financial year was $204,069.

This was a small increase on the $195,518 of the previous year, but slightly down from 2008-09, when the figure was $205,750.

Just to confuse matters, the net profit per working owner for the 51 participants in the "medical practitioner-general" survey was $167,215, down significantly on the previous year's figure of $195,518 and the few years prior to that.

In 2005-06 the net profit was $186,616, the following year $191,298 and in 2007-08 it was $220,198.

If anything, the figures perhaps suggest larger medical centres are more profitable than smaller.

Data for the Waikato benchmarking surveys are collected from New Zealand accounting firms in public practice. Some in the sector caution against using the surveys because of the small number of participants, but no one can argue about the trends they show over the years.

Ms Carter says some caution is needed when reviewing survey results as they often average the earnings of people in very different circumstances.

Ms Newlove considers the Waikato figures are lower than she would expect, but admits her clientele is from the Auckland area and doesn't represent a national picture.

While reluctant to pick a figure, she estimates salaried GPs in the greater Auckland area working one FTE of about 40 hours a week earn between $220,000 and $240,000 annually.

Larger urban practices are often going to be more profitable, with the opportunity for economies of scale, Ms Newlove says. But rural practices can also fare well because there is less competition and a more stable patient base.

The availability of more subsidies and lower copayments for patients means fewer financial barriers for patients at rural practices.

The Medical Assurance Society's annual GP locum/associate remuneration reports show trends, with a larger sample size of 173 practices.

The latest report, in January this year, shows urban and rural median hourly rates increased by 5.6 per cent on the previous year, with a median hourly rate for contracted GPs of $91 to $95.

Urban sessional median rates increased by 7.1 per cent and rural rates by 6.7 per cent, to sit between $351 and $375 for contracted GPs at urban practices and between $376 and $400 for rural.

The urban annual salary increased by 10.3 per cent to a median of $151,000 to $160,000, with median rural salaries increasing 20 per cent to a range of $171,000 to $180,000.

The majority of contracted GPs (41 per cent) was paid on an hourly rate basis, 37 per cent on sessional rates and 22 per cent on commission.

The society's business manager, Shaun Phelan, says this is consistent with previous survey trends of an increased hourly rate and sessional arrangements and fewer commission-based payments.

Half of the practices provided five or six weeks' annual leave for employee GPs rather than the statutory four weeks.

Former GP, and now practice owner, Sier Vermunt from Invercargill, says he got in a "lot of hot water" a couple of years ago when his practice advertised for a GP with a salary of more than $200,000 per annum.

"That upset quite a number of GPs; they felt it was too high and they couldn't afford to pay it."

But Dr Vermunt's making no excuses. GPs are an "international commodity", he says.

"We got GPs, we paid them that and that's the level of pay expected internationally."

Practices must remunerate GPs at an appropriate level to retain them. "If we don't compensate the doctors to a high enough level, then the community will miss out [because there will be no GPs to provide services].

"Once we advertised those fees locally, people were saying 'we didn't realise it cost so much'. Suddenly there was a better understanding of why we charge the fees we do; we didn't get a lot of negative feedback, only from some of my colleagues."

South Link Health's new practice acquisition entity, South Link Health Services, suggests a figure of $200,000 is a fair salary for a senior medical practitioner; this includes benefits such as annual leave and CME. Practice owners would expect to earn more than this, with any profits shared among shareholders.

A four-doctor practice in Oamaru recently advertised for a full-time GP, stating "anticipated" income would be between $160,000 and $180,000.

One recently retired GP, who up until last year was a partner in a medium-sized rural practice, says at the end of the financial year in March 2010 his gross revenue was $450,000 and he took home a net profit of about $200,000.

Another senior GP in a salaried position in a large city practice works 6/10ths and has a taxable income of $100,000. This includes five weeks' holiday, sick pay, insurance/registration and RNZCGP membership, two weeks' study leave with "a few hundred" to spend on registration and paid supervision. By comparison the GP earned $75,000 working 5/10ths as a lecturer.

The GP has been salaried, with one contract provision being a year's leave without pay, which he took a few years ago and thoroughly enjoyed.

"I don't enjoy doing the business stuff, so am very pleased not to be running a business," the GP says.

"Also, a really important consequence of being salaried is that we have a primary care team which would be much harder to get functioning well if the doctors were the employers as well. In particular, I can't imagine midwives being willing to be employed by doctors."

Vocationally registered GPs employed by DHBs can be covered by the senior medical and dental officers' collective agreement (MECA) negotiated between DHBs and the Association of Salaried Medical Specialists (ASMS).

The MECA specialist scale currently has 15 steps, ranging from $131,168 to $199,350. Additional to the base salary is a payment to a maximum of $16,000 annually for CME, together with other benefits including superannuation and six weeks' annual leave totalling several thousand dollars.

An annual survey by ASMS, based on data provided by the DHBs, shows that at 1 July this year the average specialist salary for a 40-hour, 1FTE position was $176,705.

Increasingly, the MECA is being promoted as a benchmark for GP remuneration. ASMS executive director Ian Powell says there continues to be a "slow trickle" of GPs who move on to the specialist salary scale.

"It's proven to be very advantageous on the West Coast and I notice a little bit here and there in general practice in areas where it's very difficult to get somebody on the more traditional practice ownership system.

"There's a little movement in the likes of the Bay of Plenty and Tairawhiti and there's also growth in GP liaison officers,
with a mix of full time and part time who are employed under the MECA."

GPs in a few areas, such as addiction medicine, are also employed under the MECA.

Earlier this year, West Coast DHB created a new 0.75 position for a GP in South Westland. Historical difficulties in attracting GPs to the Coast have resulted in the DHB employing vocationally registered GPs under the MECA.

The latest position, which was quickly snapped up, offered a salary package based on the MECA scale (between $131,000 and $199,000) together with a house and car.

Rotorua Area Primary Health Services (RAPHS) is scrutinising all the many facets of practice workload sustainability, including remuneration.

Analysis has not been completed, but among points of interest are the data on general practice teams, chief executive Kirsten Stone says.

Currently, national data sets fail to capture all the work being carried out because the sets are typically measures of fee-for-service activities, while the capitation model supports care through a wider team.

"Our analysis of total services provided by the practice team found only a very small proportion of services provided are captured in the national service utilisation data," Ms Stone says.

"We believe that understanding the contribution of all team members and the workload of each discipline in this dynamic is a vital component to understanding general practice models of care and remuneration."

Examination of GPs' workload identifies that most work outside practice opening hours to manage the associated clinical tasks of providing care to enrolled patients; things like reconciliation of lab results, follow-up on hospital discharge summaries and population health initiatives.

"We provide a centrally hosted 'cloud' patient information database for our practices that allows remote log-in from any location," Ms Stone says.

"Sustained network activity on this database commences at 6am and concludes close to midnight daily."

Extended working hours are typical for GP practice owners, who average more than 1.3FTE in their practices (based on 1FTE being 40 hours). Most of these GPs considered they were 1FTE, so RAPHS suggests benchmarking of remuneration ought to consider actual hours worked.

Lastly, but probably not surprisingly, preliminary results highlight a considerable gap in remuneration levels between primary care staff and their hospital equivalents.

Mark Wills, chief executive of growing national general practice network Peak Primary, says there is a certain amount of vagueness around the definition of remuneration because of the different structures GPs use to remunerate themselves.

"If you were comparing figures between two GPs, you might be comparing apples and oranges."

Any growth in income will be associated with an increase in fees, increase in capitation subsidies from the Government or an increase in productivity, Mr Wills says.

"If you haven't achieved an increase in productivity, or if capitation or fees haven't risen substantially, then it stands to reason you are unlikely to have any increase in income."

With decisions like the Penny and Hooper tax avoidance case (New Zealand Doctor, 21 September), in which the IRD successfully challenged the low salaries drawn by specialists from their practices, Ms Newlove says GPs need to be very conscious of what they are paying themselves. They need to check market salaries and ensure they don't face scrutiny from IRD.

"Possibly, if there are surveys out there showing much lower net income for GP owners, that would be a factor the IRD needs to look at when reviewing salary decisions that a medical company has made."

With rising overheads and pressure on patient copayments, Ms Newlove suggests it may be a good time for practices to consider increasing fees to maintain net profit.

That always brings the possibility of fees review and she says it would be really helpful if the threshold for annual fee increases was increased to reflect the increased costs to practices of providing services.

Santa may not be bringing that particular package but there is always hope in the New Year.

GP income - What the surveys say University of Waikato New Zealand Business Benchmarking Survey, 2009-2010 Results for "medical centre" survey (tends to cover larger practices) - 31 participants Net profit per working owner 2007    $106,088 2008    $205,750 2009    $195,518 2010    $204,069 Results for "medical practitioner-general" survey (tends to cover single or two-person practices) - 51 participants Net profit per working owner 2007    $191,298 2008    $220,198 2009    $195,518 2010    $167,215 ASMS/DHB MECA, January 2011 Senior medical and dental officers' collective agreement Scales 1-15 (base rate*) Scale 1       $131,168 Scale 7   $158,904 Scale 15 $199,350 * Extra benefits totalling tens of thousands of dollars come on top of these base rates and include a maximum $16,000 payment for CME, together with other benefits including superannuation and six weeks' annual leave Medical Assurance Society GP locum/associate remuneration report, January 2011 Payment method    Urban practices    Rural practices (Contracted GPs)    (Median)        (Median) Commission %    55%            60% Hourly rate        $91-$95        $91-$95 Sessional rate        $351-$375        $376-$400