I have the privilege of servicing practice owners and contractor or independent doctors who contract to medical GP Practices.
It allows me to see both views.
Contractors often complain about how the practice is run and what needs to change. Sometimes they are right. Sometimes they are wrong.
Practice owners often complain that their contractors do not care about the practice. Sometimes they are right and sometimes they are wrong.
This is what I do know.
It is down to both sides to make it work. It is the practice owner’s job to get all employees to operate as a team and it should not matter if they are an employee or contractor. That means the team need to know what the mission, vision and core values are. Many fail at that.
It is down to the contractor doctor to be part of a team and not consider themselves separate from the practice. And that sometimes means putting personal preference to one side for the benefit of the team and practice. Many fail at that.
It is only when both sides do this does a medical practice begin to work smoothly.
Contractors or independent doctors do not believe payroll taxes will affect them. They see it as a practice problem. It isn’t.
As an advisor to medical practices I know (and understand) the frustrations of practice owners. Margins have been squeezed and if payroll taxes must be paid then in many cases the practice may become unviable. In fact, I presented a webinar on payroll taxes and one of the areas for discussion was if it was worthwhile owning a practice if payroll taxes must be paid.
There’s more.
A recent NewsGP survey suggested that almost 1 in 5 will consider closing their practice rather than pay payroll taxes because after the payment of payroll taxes the medical business would make a loss.
And this is why it affects contractor doctors. If 1 in 5 close down it means there are going to be a lot more doctors on the market. And I also know from dealing with thousands of medical GP’s that most of them will not be able to survive more than a month without income.
And we all know if there is more supply in the market than demand it affects the status quo when it comes to pay.
It also means many practice owners are looking to get out of paying payroll taxes. The only way they can do that is to completely change their structure. My webinar explained two structures. One structure is to operate the traditional way. The downside? Payroll taxes will be payable.
The other way is to operate as a service (landlord) entity. If you want more information, see the links below but a practice can get out of paying payroll taxes. The downside? A complete restructure means the contractor/ independent doctor must change the way they operate. And most of them will not like it because it means the contractor/ independent doctor must create their own website, do their own SEO and marketing. The administration burdens increase too with accounting getting a lot more complex. The upside? The medical practice cannot control them in any way shape or form.
I also believe that new practices will not operate the traditional way. I think they will go the ‘service entity’ way.
It is likely in the next 3-5 years the following will happen:
The bulk of new practices will move to a service entity model.
There will be a significant number of ‘traditional practice entity’ models (this is how most GP practices are currently run) that will close unless they can reduce major costs.
Many independent doctors/ contractors may be forced to adapt to a new environment.
As an advisor to many medical practices this is what I do know
The largest costs to a medical practice is its doctors – 65% – 70%
25% – 30% is paid to admin staff, nurses, rent & consumables.
4% other costs
You do not have to be Einstein to work out that most practices will struggle to make this work. Now add on payroll taxes and a practice can easily go into negative income or what we accountants call a loss.
The whole idea of owning a medical practice is to make a profit. If you cannot do that practices will close. Will these closures affect how much contractors get paid? I honestly do not know. It might. It might not. The more practices that make a loss the more will close down leaving less choice for contractors.
I do know that less medical practices are not a good thing for patients or our healthcare system. And I also know the federal government has no answer to rising costs of healthcare. They know we need it but are just not willing to pay for it. They know healthcare is a bottomless pit, so I expect Medicare rebate rates to remain static.
This means patients pay more. Will they? Gone are the days where practices dictate what patients receive. Patients will pay more but only if they believe they get value for what they pay.
Practice owners need to communicate and talk to their contractors about the real effects on their practice. My advice is to be open. Don’t talk wishy washy language. Don’t say we will not make any money if we must pay payroll taxes. Tell them the actual loss you will make. Show your actual figures – they don’t see you struggling the practice bank account, but they do see the new car or what you are up to on Facebook and automatically assume you are swimming in it.
Equally my advice to contractors is to be open to practice owner’s issues. No one likes to take a pay cut. No one wants to close their medical practice either. But they will do if there is no money to be made.
Ten years ago, no one was paid a 70/30 split. This came about because doctors were in demand and practices were making money and were able to pay it. We are now in a position where there is a risk that practices may close (which may increase supply of doctors) and they may not be in a position to pay or maintain the 70/30 split.
GP practices have gone through significant changes in the last 5 years. Payroll tax is another change that must be managed but it may take a few years before we really know what it means. If practice owners and contractors can have a meeting of minds between now and 2025 and can plan for it, they will both come out of it with clarity and a solution that works. If, however, they both stick their heads in the sands it may not work out for the practice owner or the contractor.
If you would like access to the webinar:
Click here if you wish to see the webinar.
Click here if you want to listen to the webinar.
Click here if you want to read the transcript of the webinar.
