THINKING BUSINESS
a blog by Chris Barrow
  • Chris Barrow

Does "Return to Work" signal the death of the associate contract?



It is really beginning to dawn on me that remuneration for self-employed associates is about to be turned on its head.


In the "good old days" it went like this:


Gross Production from all sources - (UDA/plan/FPI) per day

Less lab

Less payment to associate

Less material costs

Less Operating Cost Per Surgery Per Day (OCPSPD)

=

Profit for the owner per day


For the last 20 years or so, I've been pointing out that the 50% contract only created any profit for the owner (assuming average OCPSPD) if the associate was grossing in excess of £1,250 per day and, given that average NHS associate productivity ran at £600-700 per day and average private associate productivity ran at £800-£1,000 per day - "Houston, we have a problem".


That's why the NHS corporates and owners were so relieved that the UDA system allowed them to camouflage a lower percentage beneath the UDA rate they paid the associate, versus the UDA rate they negotiated at the top line.


It's also why associate remuneration in the private sector has been edging inexorably downwards towards where it should be (mathematically) and that's a sliding scale that starts at 35%.


Enter Covid-19.


As owners are approaching the "Return to Work" environment, there's an accompanying realisation that the existing associate remuneration system has to be turned on its head.


This isn't twiddling about with percentages, it's a quantum change.


Try this on for size.


Gross Production from all sources - (UDA/plan/FPI) per day

Less required Owner's Profit per day

Less Operating Cost Per Surgery Per Day (OCPSPD)

Less material costs

Less lab

Less cost of PPE

=

Available payment to associate.


To be blunt - for as long as I've been in dentistry, owners have put themselves at the back of the queue when it came to pay day.


In the return to work environment, owners will have to put themselves at the front the queue, so that they can recover from the losses sustained during lockdown, pay their extra loans, cover their increased operating costs and return their business and family to solvency.


But there's more....


Another point to be made here - that the "Gross Production" figure mentioned above, is going to change during Phase 1 of Return to Work, based on another simple formula:


PACE x PROCEDURES x PRICE = PRODUCTION


PACE will be how many patients a day you can see.


PROCEDURES will be what services you can safely offer.


PRICE will be what you can realistically charge.


I can sense across my own client base that we are about to enter into a period of what the accountants call a "sensitivity analysis" a.k.a. playing with spreadsheets to make the numbers work.


The associate percentage contract is a risk of death and may be replaced by a completely new system - whether that's a percentage of net profit (as above), a rental model or a salary (which may be attractive given the absence of Government financial support during lockdown)- we shall see.


Market forces will decide, including those owners who blithely walk back into the old system, to discover that their existing losses on associate productivity are suddenly compounded.


I propose a radical rethink in the way that associate are paid - not to "bash them" - that isn't my point - but to sit down with each associate and agree a formula that can be a win:win in the new world.


I have no doubt that associate pay is going to change - those associates wishing to recover to previous income levels are going to have to work very hard on their SKILL SET and their PRODUCTIVITY.









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