NHS versus private – financial insights during the COVID-19 crisis

NHS versus private dentistryPractice Plan’s Lynne Clarke shares Alan Suggett’s view on what the financial landscape looks like for the dental sector during this turbulent period.

Understanding the impact of the crisis from multiple perspectives can help you build an effective strategy for your business. A lack of clarity about the current economic situation and how it affects various business models can make planning trickier.

With this in mind, I spoke to Alan Suggett, head of the dental business unit of chartered accountants of UNW LLP. Alan spoke about greater insight in terms of the financial impact during this uncertain period across NHS, mixed and private practices.

How does the financial landscape differ between NHS and private dentistry in terms of lockdown?

AS: Within the range of possibilities, most NHS practices in a closed down situation are working at a surplus. This is due to the rules regarding NHS payments. Private practices tend to be working with a cash flow deficit.

Have you found that to be the case with your clients?

AS: Yes. In fact the largest cash flow deficit amongst our private clients that I’ve come across so far requires them to borrow just in excess of £500,000. That is an absolutely staggering amount. Their forecasts showed that the practice was going to be running a cash flow deficit of something like £35,000 a month. There were also some other factors that needed to be taken into account.

As a tongue-in-cheek contrast, we saw one particular practice, quite an unusual fully NHS one, that seemed to be making more money when it was shut than when it was open. Let’s not spread the word on that!

So, would you say NHS practices are in a better position to face the crisis from a financial perspective?

AS: Not necessarily. NHS practices are still facing a lot of uncertainty, particularly around how much of their contract value they will receive. To me, it is unforgivable that at this stage, we still don’t know.

It’s been clarified by Matt Neligan, director of primary care and system transformation at NHS England. There will be no reduction for patients’ charges. But practices will not get the full amount of their contract value. There will be a reduction in relation to consumables.

But what is that reduction going to be? This is the point where I’m saying it’s unforgivable. We don’t know whether it’s going to be as little as 5%, or up to 20%.

What are your thoughts on practices that have a membership plan in place?

AS: My own experience of working with practices with a membership scheme in place during this period is that cancellations have been low. I conducted a mini-survey with the Association of Specialist Providers to Dentists (ASPD) to see if they had experienced something similar, and indeed they had.

All the responses I received agreed the vast majority of patients had continued with their membership. Cancellations had been much lower than expected. Some also commented that this was particularly the case with those who had communicated well and may have even increased their goodwill with patients.

It was also discussed that lockdown may well encourage a greater use of schemes based on direct debit. Especially given the financial stability and security this looks to have brought to private practices during lockdown.

What about your mixed practice clients – how are they financially faring with enforced restrictions on practising?

AS: The initial chief dental officer’s letter on 25 March came as quite a shock to mixed practices. This was due to its implications for certain NHS contracts. Even if it was just a small contract, let’s say 10% of the gross revenue of the whole practice, the letter implied that the practice wasn’t allowed to avail itself of any other government support measures.

However, the CDO subsequently clarified the position by informing NHS contract holders that a ‘pro rata’ basis was allowable. For example, if a practice was 10% NHS and 90% private, then the practice can avail itself in relation to the Coronavirus Job Retention Scheme. And you can furlough 10% of your payroll costs. That brings with it some difficulties.

I’ve had clients saying to me: ‘10% of my payroll costs is half a person. Can I furlough half a person?’ The answer to that is no. You can only furlough increments of people, not parts of people. Many other practices, no doubt, will be in the same situation.

There was even some talk initially of forcing people to hand contracts back. This was because practices were really dependent on job retention schemes and other aspects of government support. The thinking was that it’s better to sacrifice handing back a small contract to ensure more immediate financial security of the practice.

Thank you Alan, for taking the time to talk through your views on this subject with me. Hopefully this discussion will provide more clarity to those feeling unsure of how the COVID-19 crisis is affecting different businesses within the dental sector.

In summary, it’s fair to say that the pandemic has had a significant impact across the board. The model of your practice will have had an effect on your financial situation. No doubt many will reflect on this period and consider what positive changes they may be able to make in the future to increase their financial security.

If you would like greater insight into the current financial situation faced by the dental community, you can visit our COVID-19 Resource Hub and watch a webinar with Alan Suggett and Glenn Batten, or email Alan directly at [email protected].

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