29 Oct Working at scale – adding value or white elephant?
Working at scale is a concept that most practices have had to at least consider in the last 12 months, maybe because of an approach from another practice, a development in a federation company, a push from the CCG or purely out of interest as a business opportunity.
At MHA MacIntyre Hudson our specialist healthcare team has been talking about the options available to practices for some time, but the questions that get asked the most often when I meet a new group of practitioners are:
Will this increase my profits?
Will working at scale make my life easier?
We are now in an environment where certain groups have been working at scale for a couple of years and therefore it feels an appropriate time to take a breath and look at the outcomes.
In terms of profit enhancement our experience so far has indicated that there is unlikely to be an immediate profit uplift on the merger of several practices. Initially, there are the costs of executing the merger transaction which may or may not be CCG funded. The critical factor in post merger profitability is that it does not just happen. That may seem an obvious statement but as with any change within a business you have to work at it to make it a success.
The first area where, in the post merger world, available cost savings are often not exploited is in relation to administrative staff. Experience tells us that (in general) GP’s have high levels of empathy and struggle to face redundancy decisions and therefore planned savings can remain an aspiration. In a merger of professional organisations in other sectors such as legal, a key benefit of the merger would be the reduction in staff overheads due to duplication such as in relation to accounting and finance, general management, reception, secretarial and so on. One example we saw recently was a four surgery merger where one practice of 8 partners had 18 reception staff under varying part time contracts, now the group is investing in a centralised virtual reception and significant savings will be achieved, but this is the exception and not the rule.
The second common area of concern is that an enlarged merged business can be a complex organisation that requires high quality management i.e. a strong business manager. Often the merging practices redeploy existing practice management or reallocate tasks but fail to consider whether the pool of existing resource is fit for purpose. There is a huge difference in managing a single site surgery with four partners, compared to managing a 5-site practice with 20 partners. Again we have recently seen a great example of five practices merging and then headhunting a high quality business manager to drive the business forward. Such position clearly comes at a cost but it can help to enhance profit through more efficient working within the business and driving new opportunities and revenue streams. In this example the role of the business manager will drive a better work-life balance for the partners in the business as well.
Another situation we have seen in recent mergers is a lack of cross-site co-operation. Effectively the merger happened on paper but in reality each site continued to operate exactly as they did before the merger. Therefore 2 plus 2 becomes 4 but is unlikely to become 5. Now, in some instances the merger model is one of strong surgery level autonomy and this is absolutely valid if it is part of a wider plan, but when it is unplanned it leaves one asking whether the effort was worthwhile in the first place.
We have seen several mergers or ‘at scale models’ which have had new revenue streams as an expectation in their business plan. Our recent experience would indicate that caution should be urged in this respect. There is a huge variation from one CCG area to the next in terms of ability and willingness to push additional funds into primary care, but we would suggest that for a merger the base case business plan should include only the ‘known’ income streams with any ‘potential’ streams being considered as an upside sensitivity only.
When considering an ‘at scale’ as a new business model it is hugely important to have a proper business plan in place. What I mean by this is a financial model bringing the practices together, along with a well thought through plan for post merger actions such as cost savings, recruitment and redundancy, new income streams, merger costs and so on. I would also recommend that this should be to the level of allocating responsibilities to individuals along with a plan for on-going monitoring of progress against the plan. As I said at the start, success does not just happen – you have to work at it.
Martin Ramsey – is a specialist adviser in relation to primary care at MHA MacIntyre Hudson. Martin deals with all aspects of GP businesses including the year end accounts, business taxation and personal tax compliance work. Martin also advises on other finance related matters such as property transactions, capitalisation, distressed practices partner structures, profit sharing, business strategy and so on.
Martin prefers to work face to face client with his clients. This helps him build a strong relationship, and gives him the opportunity to really understand their business and offer support and advice based on both their personal and corporate aspirations.
Outside of work Martin is married with three children who keep him busy. He is also a keen cyclist and enjoys a day’s fly fishing when the weather is fair.