There has been a lot of media coverage and how it may impact you. This is a brief and practical summary sourced from the Actual Budget Papers on what you should ask your advisers.
The two parts that we think are particularly significant are below in Health – 10 significant healthcare changes and Tax – 6 tax breaks. I have provided our commentary to highlight strategic opportunities that you may wish to consider. Yes, there are winners and losers but from experience it really depends on your attitude.
Remember doing nothing or hoping for the best is not a strategy! This edition seeks to help you align or define your practice strategy and services in the right direction, before it is too late. Analysis of the budget changes highlights that the next five years will be critical for your medical practice, where we will see both big winners and losers . Stronger practices will survive and thrive. Overall, it is all about working smarter, not harder, and growing bigger.
Part 1 – Health 10 significant healthcare changes that affect you
In summary, the budget will force the following changes in the next 5 years: a GP co-payment, increase in practice size, a greater emphasis on IT infrastructure and Medicare audits via MBS revisions.
More money is available to outer metro and rural practices. New GP super clinics are dead. As in earlier years, more budget details may be released post the budget hype so watch this space.
1. Medicare Benefits Schedule — changes to GP rebates — reversal
The Freeze is inevitable – co-payment by stealth!
The Government will not proceed with measures originally announced in 2014‑15 to redefine the time requirements for Level A and B GP consultation items and to reduce rebates by $5 for common GP consultations and after hours services to non‑concessional patients aged 16 and over. The GP co-payment is off the Agenda!
The government introduced a four-year freeze of GP Medicare rebates. While a raft of other changes have been reversed in the current budget, the four-year freeze will remain. In fact, it is a fait accompli as of the 1st July because it is an administrative change and so does not require senate approval and there is no extra money in this budget to allow for any amendments.. Effectively, this means that by 2017-18, a GP seeing a non-concessional patient will get a rebate that is 7% lower than today. GPs will have 3 choices: to introduce a co-payment, merge into bigger practices or die.
One of the arguments that we have heard against introducing higher co-payment rates is that an increase in out-of-pocket costs could stop some people getting preventative care, resulting in a higher number of more complicated episodic cases. Practices can avoid this situation by introducing an in-house safety net scheme. We will cover this issue in a later edition.
Whatever the case, upon introduction of a co-payment, patients will become more demanding and discerning as they are forced to pay out of pocket expenses. We have provided some practical tips on how to address such a change in patient expectations in our article “Federal Health Minister Offers your GP a Lifeline”.
To date the Government has been silent on whether they will pay the bulk billed rate and allow the practice to bill the difference to the patient. This “additional fee” as referred to by the Health minister regardless of whether this relates to a fee gap or reimbursement for a consumable, is still to be confirmed or denied. Watch this space for news on this issue.
We anticipate that before the 1st July, smaller “administrative” announcements will be made, hopefully to clarify if any such opportunities do exist. To this end, a comprehensive Medicare Review in the next two years has been announced. So do not hold your breath and hope for the best! Start making changes to your practice now. See our article How to beat the Medicare Freeze for further information.
2. Merge or Die? Like it or not bigger will be better, it is smarter and safer for both doctors and patients!
Bigger is better, smarter and safer. Patient gaps will make patients more demanding. The Government desperately needs to reform health as there is no money. E-health is their block buster idea and practices need to become more systems sophisticated meaning a serious upskilling of practice managers. Note that if you do nothing, patients may lose access to rebates or the practice will miss out on key Government incentives.
In the last few months for many clients, we have been conducting 5 year financial modelling forecasts based on our curated data, collected on over 1,000 practices over the last 23 years of operation of our business.
Depending on the level that a practice bulk bills, profits will decline in year 3 and 4 from 3% up to 20% (or $7,000 up to $20,000 per full time GP) p.a for an 80% bulk billing practice. A key point here is that this worst case scenario (80% bulk billing) represents the majority of general practices in Australia! Importantly, over the next five years such a strategy will make a practice unviable, leading to greater practice mergers or early retirement of GP’s who are not able to adapt to this change.
Furthermore, there will be an oversupply of non-owner GP doctors over the coming years. This will result from an oversupply of GP registrars and from Doctors who cannot afford to retire, but need to cease operating their own practice. This is great news for practices that have a growth strategy, which may involve: increasing and improving practice infrastructure, increasing consulting room space, diversifying services and operating with a centralised back office that uses a multi-location support approach.
3. Improve Immunisation Coverage Rates or your patients will lose their social security!
The Government will provide $26.4 million over four years for a range of activities designed to improve immunisation coverage and further reduce the incidence of vaccine preventable diseases in the Australian community.
Immunisation coverage rates will be increased by: broadening immunisation data collection to record all school‑based adolescent vaccinations; introducing better targeted performance benchmarks for states and territories; providing incentives to health providers, including to General Practitioners, to provide catch up vaccinations to children who are overdue for immunisation; and providing a community awareness campaign to increase awareness of the National Immunisation Programme and dispel myths about immunisation.
It is important for GPs to know that from January 1, 2016, only those with medical exemptions will be able to opt out of vaccinating their children or else face losing access to childcare payments and Family Tax Benefit Part A payments. This new policy is called the “No Jab, No Pay” policy.
4. Medicare Benefits Schedule — review and reform and more practice audits?!
The Government will be extensively reviewing the Medicare Benefit Schedule. Expect increasing audit activity and changes to item numbers. Reducing MBS exposure should be a key strategy i.e. reducing bulk billing.
Clearly, practices that keep bulk billing run the risk of over servicing. Seeing more patients to keep the doors open is not sustainable in the long run. It will lead to burnout, malpractice or Medicare audits.
5. Medicare Benefits Schedule — Health Assessment Items — Prevention is king!
Albert Einstein said intellectuals solve problems, geniuses prevent them. Primary healthcare practices that continue to focus on healthcare prevention activities will continue to be the most successful practices in Australia. Changing the workforce culture and patient habits to a preventative modality rather than existing as a culture that provides episodic care will be the greatest challenge in primary healthcare over the next decade.
To encourage such a change, the Government will achieve savings of $144.6 million over four years by removing the current duplication between Health Assessments under the Medicare Benefits Schedule and the Child Health Assessments already provided by the states and territories. More preventative consultations via Health Care Assessments is the most sustainable way to change your practice direction away from just episodic care. For more information, see: How to beat the co-pay and GP’s offered a lifeline.
From 1 May 2017, the current two‑yearly Pap test will be replaced by a five‑yearly primary Human Papilloma Virus test for women aged from 25 to 74 years.
This reform will reduce the number of screening tests over a woman’s lifetime and is expected to decrease the mortality and morbidity from cervical cancer by at least 15 per cent.
The Government is developing a National Cancer Screening Register to replace the current state and territory registers for the NCSP and the National Bowel Cancer Screening Register.
7. Medicare Benefits Schedule — new and amended listings – GPs and Specialists Watch Out!
The amendments to the MBS include:
- introducing rebates for second expert opinions for diagnoses related to the testing of bone marrow specimens, tissue pathology and cytopathology;
- new items for the treatment of early stage breast cancer using targeted intraoperative radiotherapy;
- new items to enable routine monitoring of implanted cardiac devices to be provided remotely; and
- extending eligibility for the use of tele health services to optometrists, to support the use of video consultations with specialist ophthalmologists.
Further information will be available in the summary of changes included in the MBS issued by the Department of Health when the amendments take effect.
Clearly there is more funding from HEC’s debt relief to provide grants for doctors to work in Outer Metropolitan and Rural areas. Tapping into the oversupply of GP Registrars is a great opportunity for rural and outer metro practices.
The new December 2015 National Minimum Terms and Conditions make this a more viable proposition. A good GP Registrar can generate a profit of up to $70,000 per annum with the right systems and training program established within a practice. For more information see David, should I fire my GP Registrar?
9. My Health Record — a new direction for electronic health records in Australia – start preparing!
Practices could miss out on government grants and patients may get a lower patient rebate if they are not on the electronic health record system. Personally Controlled Electronic Health Records (PCEHR) will be renamed as My Health Records. Being an E-health friendly practice is a key strategy that practices need to plan for in order to maximise their opportunity for Government incentives.
Practices need to become more sophisticated with their IT systems, uspkill staff and educate patients.
10. Super Clinics – new ones are dead
GP Super Clinics on which the building has not yet started will no longer be funded. Therefore, existing practices need not worry about Government competition and can start to safely invest in infrastructure. Investment in infrastructure may also be helped by the recently announced tax breaks.
Part 2 Tax – 6 Tax Breaks!!
There are a number of tax breaks announced in the budget this year. The bad news is if your business turnover is greater than $2m p.a., either from direct or indirect operations, then you will not be eligible. After all it is a small business package.
Importantly, the Tax Office looks at related entities, joint owners, family members etc and groups these turnovers together under certain conditions. Please consult your tax adviser, or our registered tax agent practice at no obligation or fee, to make sure you will not be denied the tax breaks detailed below. Remember it is not law yet. It still needs to be passed by the Senate and if passed it will be retrospective.
If you are setting up a practice, restructuring or are self employed then there is something in this budget for you.
For many group practices that bill more than $2m per annum, these tax breaks will not be available to you. However, the non-practice owner self employed doctors or providers in your practice may still be able to claim these breaks. If you pass this information on to them, you may also indirectly benefit. It may also provide more flexible arrangements and opportunities for succession planning.
Structured correctly, these tax breaks could reduce the employee on costs of large practices, such as employer super, payroll tax, Workcover and Fair Work obligations and related penalties. See Why Restructure for further information.
1. $20,000 immediate tax write/deduction for practices and self employed providers
Self employed doctors and providers in correctly structured practices could immediately deduct before 30th June and until 30th June 2017, any item for their work that is no greater than $20,000. For example work-related mobiles, lap tops, doctors bag and a motor vehicle (i.e. any tools of trade) are deductible. Practices can claim similar items, including plant and equipment and any other furniture and fittings that may require an upgrade, including commercial software or perhaps even a new website.
All small businesses will get an immediate tax deduction for any individual assets they buy costing less than $20,000. (Currently, the threshold sits at $1,000).
This $20,000 limit applies to each individual item. Small businesses can apply this $20,000 rule to as many individual items as they wish. Our best advice is that you ensure you take out appropriate finance for any large purchases.
These arrangements start Budget night and continue until the end of June 2017.
PLUS other taxation benefits
As a small business, Sam may also be eligible for a range of other taxation benefits including:
- small business concessions on capital gains tax
- simplified accounting and reporting arrangements
- immediate deduction for certain pre-paid business expenses
- option to account for GST on a cash basis
- option to elect for annual apportionment of some GST input credits
- option to pay GST by quarterly instalments
- PAYG instalments based on GDP-adjusted notional tax
- Source: https://treasury.gov.au/2021-22-pre-budget-submissions
2. FBT exempt mobiles and lap tops
We note that mobile phone and laptops are Fringe Benefit Tax exempt. This may be useful if you are planning salary packaging arrangements for your employee staff.
3. 1.5% Tax cut for small companies to 28.5%
The Government is reducing the tax rate for the more than 90 per cent of incorporated businesses with annual turnover under $2 million. The company tax rate for these businesses will be reduced by 1.5 percentage points to 28.5 per cent.
The tax cut will apply from 1 July 2015, meaning companies with Pay‑As‑You‑Go instalments can benefit from their first payment after 1 July 2015.
The franking credit rate will be unchanged at 30 per cent, which means incorporated small business owners will pay less tax, providing certainty for investors, such as self-funded retirees.
Note that the tax rate for companies with a turnover of $2 million or more will remain at 30 per cent.
4. 5% Tax discount for sole traders, partnerships and trusts capped to $1,000
Tax discount for unincorporated small businesses e.g. sole trader partnerships and trusts. This is great news for self employed doctors and providers. Note that while the tax discount is capped at $1,000, there are other benefits available:
The Government will also provide a 5 per cent tax discount to unincorporated businesses with annual turnover less than $2 million from 1 July 2015.
This tax cut is broadly in line with the 1.5 percentage point tax cut for small incorporated companies.
Logistically, these cuts mean that individual taxpayers will still calculate their business and personal income in the same way, and then they will get a 5 per cent discount on the tax payable on their business income.
Note that the discount will be capped at $1,000 per individual in an income year, and it will be delivered as a tax credit in their tax return.
5. Restructuring capital gains tax (CGT) free
The government has announced that from the 2017 financial year, a CGT roll-over will be available for certain changes to the legal structure of an entity.
While undoubtedly these will be complex to apply, the ability to change the structure of your entity without an additional tax impost paves the way for more effective business structures and associated tax planning.
6. Start up write off
Start‑up practices will be allowed to immediately deduct professional expenses incurred when they start a business, such as legal expenses on establishing a company, trust or partnership; rather than writing them off over five years. This will provide immediate cash flow benefits for small business.
Where to from here?
For more information, contact our office at firstname.lastname@example.org or 1800 077 222 for a no obligation chat, with David Dahm our CEO and Founder of Health and Life – national Health Practice, Tax and Accounting Advisers since 1992. Alternatively visit our website at https://www.healthandlife.com.au.
Please consult us or your adviser before acting on any information.
If you are seriously considering the immediate positive benefits of a practice restructure or changing accountants to a specialist healthcare practice advisory and accounting firm who better understands your needs, click on this link to see the amazing ways that we can work together to help your business grow and thrive.
Join our discussion on Linked In for further updates or keep watching this space.
Remember…start now, think and act like a winner and you will achieve!