CURRENT CIRCULATION: 7467 DATE: 29th November 2007 ISSUE NO: 152

Welcome to Health & Lifes free email newsletter service. Tell a friend that we would be happy to add their email address to the distribution list. This service is to provide Health and Lifes clients and those who attended our presentations with up to date information on key financial and practice management issues at may affect your practice. Please do not use this as a substitute to seeking professional advice. Writer in charge: Mr David Dahm BA.Acc, FCPA, FTIA, Ffin, FAAPM, GLFG.

The Best Doctors Go To The Best Practice!

The front page of the Australian reported Doctor crisis leaves 12 million short of medical care on 19th November 2007. The Department of Health and Ageing have deemed 59 percent of the population are lacking adequate access to primary care. The Advertiser on 21st November 2007 reported in South Australia Rural GPs want to quit. University research has revealed one in two were considering leaving rural practice. On the basis of this information why join or continue to invest in the Titanic! The answer is simple sick people dont work. This is not good for the community, business or any government that seeks to be reelected. Contrary to the medical profession any normal business person would take a contrarian view and argue the glass is half full and there are more blue sky opportunities than problems ahead. We shall explore this shortly. We take the following view that four things are required to address this problem: Four Key things need to fix the current problem: 1. Change Doctor Attitudes - Doctors need to change their attitude towards general practice ownership and see there are some compelling financial and non-financial reasons to stay in practice. We will detail this later. 2. Ensure Practice Sustainability - Establish good business practices to reduce inefficiencies and increase practice capacity and better resource utilisation that will attract providers. Practices should be investment and tax friendly and provide excellent asset protection. We will detail this later.

3. Change Patient Attitudes educate patients on taking responsibility for their health care by selling the fact that it is better and cheaper than a cure especially when there is a doctors shortage! 4. Embrace Team Based Care - Promote team based care for screening and testing patients such as the use practice nurses, psychologists, dieticians etc. The best practices attract the best doctors, so what is the real secret to succession planning and the best practices in Australia? The Rural Doctors Workforce Agency SAs research has shown doctors want to join a well run practice that has good clinical and business systems. Does it work? We have one such rural client who had 3 FTE GPs and now has 10 in 2 years. It is achievable and it is about having the right vision for your practice. We have analysed this issue and more detail over the last 15 years after reviewing over 1,200 practices. We have identified which practices had the most successful and sustainable arrangements in place. From this we have developed the attached Best Practice Indicators - The 12 Key Elements for Building a Successful Investment Grade & Socially Responsible Practice. This is a ranking criteria system doctors can use when making a decision which practice to join or in determining how to improve the business end of their practice. The overall objective is to leave a legacy and not a liability and to ensure your practice works for you and can be ultimately sold for a fair price so the next generation can takeover. Everyone of our clients are part of our Best Practice credentialing and ranking program and have been automatically graded from investment potential and are working towards the blue chip status. This gives purchases peace of mind without an expensive due diligence. We address this in detail in this edition. In this edition we cover: 1. 2. 3. 4. What are the biggest opportunities in general practice now? What does it take to make it happen? Start a coffee chat. What should doctors know and look for before they invest in your practice? Where to from here?

The Best Doctors Go To The Best Practice!

1. What are the biggest opportunities in general practice? If you are a doctor you may have not saved enough prior to your retirement (or worried about the subprime collapse) or you may be on the home run and/or want to make the next 10 years of practice your best for you and others to follow. Our best advice is make the best use of your time now because if you dont, it can become your worst enemy and your practice your biggest liability. Everybody is prepared to pay a price for certainty and this in turn creates new opportunities. 1.1 Co-locating pharmacy

I was at a BBQ with one of my accounting friends who provide loan guarantees to pharmacists. I asked him on what basis does he do this. He said to me for every full time GP the local pharmacist is worth nearly a $1m in goodwill. Local pharmacists are extremely worried about retiring GPs. Up to 80% of their income comes from their local GP. This is quite an extraordinary opportunity in itself. So if you have 10 GPs co-located with a pharmacy potentially a practice has a pharmacy worth $10m on its hands. What is interesting to note is that pharmacists do pay a base rent plus a percentage of turnover. In some States there are restrictions on the turnover. Clearly this provides a huge investment opportunity for GPs to merge their practices. Rents can be as high as $1,700 a sqm. Some pharmacists may be unhappy with such arrangements and certain provider number/kilometre restrictions may prevent co-location. We have found ways around these problems call us if you require assistance. This also opens co-location opportunities for radiology, pathology and other services particularly in rural areas where competition is low or in outer metropolitan areas. A common mistake practices make is letting an outside investor/bank to invest in the building. There are smarter ways to structure such arrangements through sub leasing which makes it more attractive for doctors to buy into the business rather than the building. This also significantly improves succession planning opportunities and prevents non-doctors profiting from the work GPs generate. 1.2 Labors $220m Super Clinics program? A Labor government has been elected. Some practices may be threatened by the governments announcement to spend $220m on establishing new Super Clinics all around Australia in rural and metropolitan areas. The Victorian and South Australian governments have similar programs. These are supposed to be integrated co-located multi-disciplinary healthcare centres. The policy detail is still not quite clear and there appears to be different variations to the proposed models. This is a significant part of the Labors primary care policy reform to invest heavily in practice infrastructure. Some of you may be aware Health and Life developed the Super Clinics or Health and Lifestyle Precinct concept from 2002 which received a lot of national attention. We have received support from GPs, Specialists, Hospitals, local Divisions of General Practice, State and Federal politicians and GP and Clinical Professors and Deans of Medical schools. See attachments. It is something you may wish to consider in your local area. This innovative local doctor ownership model (because it guarantees a buy and sell price for your practice) remains as a real alternative to corporatisation and clinical independence. It is based on a local core group of GPs owning the clinic. Co-located are clinical and teaching schools and public hospital outreach specialty clinics. It easily allows doctors (whether specialists or GPs in their class) to buy and sell an interest in their practices for a pre-determined value using a standard and fair formula. The value is determined by the nature and the scale of each practice. Practices no matter how small could merge and be co-located on a public hospital/aged care facility or be a big as a stand alone $20m facility with a large super market paying rent next door. See composite picture. Mini versions of these clinics have been established around Australia. This initiative provides significant opportunities for practices to embrace structural change in their practice. A word of warning it is important to seek appropriate advice on how to go about this process. It is important that all stakeholders especially pharmacists are consulted so there are no council approval problems and in particular any government obligations do not limit the potential for the practice. GP Ownership Does Make a Difference

For any Super Clinic to be sustainable then GPs need to have skin in the game and it needs to be fully integrated under one roof. Otherwise it is a practice without a clinical soul or direction. Nonclinical ownership can be a myopic and band aid strategy. It can also breed indifference towards the bigger picture issues surrounding community based healthcare. Encouraging a hotel like fly in and fly out medico tourism culture does not commit GPs to the local community and this causes huge continuity and medico legal problems for everyone. This in turn is creating and leading to a chronic systems failure. Continuity of patient care is paramount. Doctors can and do successfully recruit doctors. It is important they are at one with their peers. They want to know why they should believe in you when you dont believe in owning your own practice. Others will continue to argue why own the home if you can rent it? Like many have found owning is far better than renting. If non-owner doctors want to work smarter and not harder the professional satisfaction and commercial opportunities and tax savings are more compelling than home ownership if it is set up correctly in the first place. Contact David Dahm on at pa@healthandlife.com.au. 1800 077 222 for further information or email him

1.3 Borrowing in Your Self Managed Super Fund ( new rules in the last few weeks) Announced a couple of weeks ago, self managed super funds can now borrow when making certain investments. Currently there is an exemption where you can invest in your own practice building. We will be reporting on the details of this new and previously prohibited arrangement. Practices seeking to redevelop their practices can receive very generous tax breaks by purchasing their building using super. Clearly subject to specific terms and conditions practices could obtain even larger tax breaks in the doctors and spouses name up to $100,000 p.a. via the family trust see our news alert no. 148. 2. What does it take to make it happen? - Start a Coffee Chat The first thing is for the practice owner(s) to recognise whether there is an opportunity in their practice to make a change and are they committed to it. We always recommend you talk to your colleagues/competitors and open up an informal dialogue, go out for a coffee and have a chat. We sell all the necessary template agreements to amicably deal with any anxious points of difference. Passing on this edition may be a useful starting point. If you feel uncomfortable about speaking to a colleague we can discretely open this dialogue without losing face. The following key issues are crucial in this process. 2.1 Be prepared to work in larger groups As mentioned earlier it is critically important to recognise that everybody is prepared pay a price for certainty and this in turn creates new opportunities. GPs who work together in groups will always be more successful in creating certainty and a formidable bargaining power with any stakeholders. This will translate to a sustainable practice. We have a 3 person rural remote practice that now has 10 FTE GPs because they created a powerful vision and were committed to building a large purpose built practice which has successfully attracted good doctors from interstate and oversees. With excellent planning it is possible to work against the odds wherever you are. 2.2 Be positive about General Practice You and owners in particular must present a positive vision. Keep the car on road and the destination clear in your mind. Avoid people who engage in road rage in your practice. They are always looking in the rear vision mirror and repeating where the danger signs are to the point it paralyses any progress.

This is not what the real journey is about. A passenger should not feel so insecure that they feel they are being taken for a ride. By presenting your practice in a negative light you will never get anybody into the car. People get in because it is going to take them somewhere where they want to go. They want to know and understand where they are going upfront. They want to feel confident the driver is competent and can get to the destination point (what is your vision what is the end point?). Therefore in summary a powerful vision, strong leadership and effective management creates the foundations for certainty and for any new opportunities to surface. To create a vision is the best way to see the future. Leadership is the powerful force a positive attitude which shows way for others to follow. It takes only one individual to provide the vision, but it takes a team effort to achieve it. Finally management is about identifying and implementing efficiently and effectively the key steps that capitulates this vision. 3. What should doctors know and look for before they invest in your practice? 3.1 Get the business model right and people will pay a fair price for your practice. Solo practices are generally or hardly impossible to sell for more than the plant and equipment value if you are lucky. However 6-10 doctor practices can sell up to $300,000 for a 10% interest. Some of you may baulk at this but the reality is achievable in metropolitan and remote rural areas and we can prove this. The real question is why? The answer is simple. It is the business model of the practice that makes the real difference. The most common problem is many practices focus on the Me model which we call the Liability model as opposed to the We model which is an Investment model. See the attached H&L Best Practice Indicators Diagram. In our last edition we gave many examples of other ways to generate income not from personal exertion. The reality is the most successful practices have a hybrid model that rewards doctors for commitment called eat what you kill as well as it provides and excellent passive income we call earn while you sleep from the other activities generated within the clinic. 3.2 Make sure your practice meets the 12 Best Practice Indicator Criteria Ultimately practice needs to show it is working towards the key criterias that will make your practice attractive to other doctors wanting to join it. Doctors want to join well managed practices. Use the attached checklist 2. Health and Life Best Practice Indicators. Review all 12 points. Just by embarking on some of these changes you can have a significant impact on your practice. Remember succession planning is a process and not an event. It is important you have financial statements and reports doctors can easily understand These days a doctor has to be a lawyer, a chartered accountant and an MBA to begin to understand the books and the operations of a practice. To simplify this process is why we came up with the Good, Bad and Ugly report and the Best Practice Indicator credentialing system to overcome this problem. Ideally you should have your practice externally approved in terms of meeting the set criteria. This provides an external validation and establishes your financial credibility in the market place. This alone helps the practice command a higher price. We endorse (subject to terms and conditions) the operations of the practice based on this criteria so any doctors wishing to purchase the practice can do so with confidence and with written proof the

future of the practice are based on solid grounds. Every report comes with a brief written valuation which is part of our clients annual financial statements. We have found this has triggered interest in doctors seeking to buy an interest in a practice. If you are keen to review a sample copy of our Good, Bad and Ugly report please email us at pa@healthandlife.com.au for more information. The bottom line the process makes an objective assessment which stands up to the scrutiny of any external adviser which eliminates the embarrassing need to haggle for a fair price. 4. Where to from here? 1. Consult your professional adviser in relation to the strategies suggested; 2. You may wish to receive a copy of the Good, Bad and Ugly Report please email us at pa@healthandlife.com.au. 3. Go through the Best Practice Indicators Checklist and ask yourself how well do you stack up. 4. If you are not sure about any issues raised in this broadcast contact David Dahm on 1800 077 222 for an initial free no obligation consult, or email us at pa@healthandlife.com.au. Health and Life provides comprehensive practice consulting, accounting, taxation and financial planning advice for group practices and individuals. Which topics would you like to be covered? If there is a particular topic that you would like covered in one of our future News Alerts, please email pa@healthandlife.com.au and let us know what it is. We will then endeavor to cover your requested topic. Do we have your email address? It is apparent in feedback we are receiving that there are persons receiving this regular email who are not on our email list. If you are receiving this email second-hand from another source, we would be delighted to receive your email address and we will add you to our database so that you can receive it first-hand on the day it is sent. This invitation is open to all Practices. Please send your email address to pa@healthandlife.com.au. Do you wish to unsubscribe from our list? Please email pa@healthandlife.com.au if you wish to be removed from our distribution list.

Copyright Notice 2007 This email, including any attachments, is for the personal use of the recipient(s) only. Republication and re-dissemination, including posting to news groups or web pages, is strictly prohibited without the express prior consent of Health & Life Pty Ltd. Disclaimer Notice Health & Life Pty Ltds Best Practice News Alert is designed as a comprehensive and up-to-date Accounting, Practice Management and Healthcare news service to alert readers to the latest in Practice and related developments affecting the medical, dental and allied health professions as they happen. It is published when there is news to report. No responsibility can be accepted for those who act on its content without first consulting us or obtaining specific advice.

Health and Life Pty Ltd Accounting, Tax, Practice Management and Healthcare Consulting Services. Looking after your future National Head Office: Postal Address: Level 5, 108 King William St, Adelaide SA 5000 GPO Box 11042, Adelaide SA 5001

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Which topics would you like to be covered? If there is a particular topic that you would like covered in one of our future News Alerts, please email pa@healthandlife.com.au and let us know what it is. We will then endeavour to cover your requested topic. Do we have your email address? It is apparent in feedback we are receiving that there are persons receiving this regular email who are not on our email list. If you are receiving this email second-hand from another source, we would be delighted to receive your email address and we will add you to our database so that you can receive it first-hand on the day it is sent. This invitation is open to all Medical Practices. Please send your email address to pa@healthandlife.com.au. Do you wish to unsubscribe from our list? Please email pa@healthandlife.com.au if you wish to be removed from our distribution list. Copyright Notice 2007 This email, including any attachments, is for the personal use of the recipient(s) only. Republication and re-dissemination, including posting to news groups or web pages, is strictly prohibited without the express prior consent of Health & Life Pty Ltd. Disclaimer Notice Health & Life Pty Ltds Best Practice News Alert is designed as a comprehensive and up-to-date Accounting, Practice Management and Healthcare news service to alert readers to the latest in Practice and related developments affecting the medical, dental and allied health professions as they happen. It is published when there is news to report. No responsibility can be accepted for those who act on its content without first consulting us or obtaining specific advice.