Activity 2 – Understanding your practice costs and identify current billing arrangements

Identify and categorise fixed and variable business expenses 

To ensure that your fees remain fair and equitable, and provide you with an appropriate income, it is necessary to regularly dedicate time to identify, assess, and control the costs associated with delivering high-quality health services. 

You will have a different set of costs depending on whether you are a practice owner, an independent practitioner or an employed GP. Costs may include: 

• wages for staff (including tax and superannuation) 
• occupancy expenses (ie rent or mortgage and associated costs) 
• overhead costs (ie utilities, building insurance, practice cleaning, cars/petrol/parking) 
• infrastructure and technology costs (ie hardware, software, website hosting, online booking systems) 
• medical consumables (eg dressings) and personal protective equipment (ie gowns, gloves, masks, eyewear) 
• administration and other consumables (ie stationery and brochures, printer cartridges, kitchen items, postage) 
• fees for accounting, legal and other professional services 
• professional costs (registration and accreditation, indemnity insurance and membership fees for professional bodies). Although some of these could be considered personal costs, some practices agree to pay some or all of these costs (eg membership of a professional organisation) because the practice also benefits. 

You will likely have both fixed and non-fixed (variable) costs.  

Many of the costs incurred by general practices are fixed and do not vary much or at all, regardless of how many patients you see. Examples of fixed costs can include rent, some insurance premiums, wages for permanent staff, cleaning services, IT subscriptions and website hosting. Some fixed costs may increase at regular intervals (eg rent, wages). Generally, you can do little to control your fixed costs, although you can aim to reduce some of them by, for example, negotiating a rent reduction with the premises’ owner, and ‘shopping around’ for cheaper providers. 

Examples of non-fixed or variable costs include utilities and consumables, which can differ depending on how many patients you see and what their needs are, how many hours your practice is open and procurement activity (eg buying printed stationery in bulk to reduce unit costs). You can control some of these costs by asking staff to turn off equipment and lights when they are not in use and comparing costs of different suppliers before ordering to reduce waste. 

 

Establishing your breakeven point 

Your breakeven point is the point at which your total revenue equals your total expenses. By identifying your breakeven point, you can develop a better understanding of your practice’s financial viability. 

Remember that revenue is what you use to pay costs, therefore generating $10 does not equal $10 gained or $10 of profit. In fact, if your costs are $10, you have made no profit at all. However, if you reduce your costs to $7, you generate $3 of profit. 

If you are considering your breakeven point as an individual GP, you should also consider what income you need to maintain your lifestyle.  

The RACGP Billing calculator can help you identify your revenue to help establish your breakeven point.  
 

Task 3 – Identify your breakeven point

Using the RACGP Billing Calculator, identify your breakeven point.  

• As an individual GP, this reflects the total income you need to achieve to cover costs and maintain your lifestyle. 
• As a practice owner, this reflects the total revenue you need to achieve to cover practice costs (including drawing an income for yourself). 

Question: What is your breakeven point?  

Download task 3

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Task 4 – Breaking down your breakeven point

Using the RACGP Billing calculator, calculate your average hourly and monthly billings.  

In the first tab (Annual income), you can calculate the average hourly billings required to meet your desired income.  

On the second tab of the billing calculator (Monthly billings), enter your typical billing as it currently stands.
 

Using the Billing Calculator, calculate the following to determine whether you are meeting your financial goals.  

• Average hourly billing 
• Predicted annual income 

Question: Do your current billings align with your breakeven point? 

Question: Are your currently meeting your financial goals?  

Download task 4

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Do you apply different billing arrangements for different patient groups or services? It is appropriate to evaluate how you are billing various groups of patients and/or services. This can help you determine whether changes could be made to achieve a more sustainable business in a way that you believe is fair for your patients.  

To get a more accurate reflection of your billing arrangements, you are encouraged to extract the appropriate data from your practice software