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  Considered Health

Issue 13 - Health Newsletter
         

The Value of Owning your Premises

Should you own the building that you practice from?

This is a question that we are often asked.  There are many benefits to owning your practice premises and in the right circumstances it can lead to greater wealth building for practitioners.

If you have the opportunity to acquire your practice premises, you may wish to consider the following:

  1. Financial Benefits

Recent benchmarking data shows an industry average for Rent Expense as being approximately 6.2% of Gross Fees.

Assuming a practice that generates $1million in gross fees:

Gross Fees  $1,000,000 
Rent Expense (6.2%) ($62,000) 
Other Expenses ($800,0000) 
Profit $138,000 

 

 

A quality metropolitan medical practice building should provide a return to its owner of up to 7% per annum.  Therefore, for a medical practice earning $62,000 for its owner, this would equate to a capital value of $885,000.

Now let's assume you purchase this property for $885,000 plus Settlement Costs (such as Stamp Duty etc) of $44,000 (total $929,000) on an Interest Only facility @ 6%.

Assuming all other factors remained the same:

Gross Fees  $1,000,000
Interest Expense ($929,000 @ 6%) ($55,740) 
Other Expenses ($800,000) 
Profit $144,260 

This is a simplified example, and the difference between rent paid and loan interest would obviously depend on many factors including finance terms from the bank and property lease arrangements.

What this demonstrates however is that often the cost to service a property loan can be less than the cost to lease the property from a third party.  You would also need to determine any bank requirements to pay down the loan balance as this will have an impact on your cashflow.  It is important to understand your future loan commitments to ensure you have the capacity to meet the payments, while keeping enough cash to run your practice.  A cash flow budget is essential to ensuring any arrangements you commit to are sustainable.

  1. Flexibility

If you own the property, then you will not need to ask permission from the landlord to do anything to the property. If you wanted to do some renovations, repaint or extend, then you are free to do so (subject to council and other government approvals). 

You will also enjoy the benefit of the increased value of the property from any additional works undertaken.

  1. Passive Wealth Building

One of our key focusses is to help our clients run profitable businesses and then use those profits wisely to build their wealth and provide for their future.

For example, assuming a long term capital growth rate for the property of 5.00% perannum, the modelling below shows that the property would triple in value over a period of 30 years.

 

As you pay your property loan down, your equity in the property increases, and your debt owed to the bank decreases, building your overall net wealth position.

Your practice premises can form a key part of your investment and wealth building portfolio.  Even though you may also be the tenant, it is important to consider your property as an investment and treat it accordingly, ensuring it is making you a sufficient return and meets your ongoing investment plans.

  1. Retirement & Succession Planning

Often retiring practitioners will retain ownership of the property as a way of earning rental income post-retirement.  Just because you are no longer practicing, does not mean you have to sell your property.  

Continuing as landlord is always a way of continuing a connection with your practice post-retirement.

Future Issues to consider...

When considering buying your practice premises, it is important to have an appreciation and understanding of the above factors, and make sure it fits your overall financial goals.  You will also need to consider how ownership is structured, how it is financed, and ensure you have an understanding of your future cashflows to ensure you can meet your new obligations as a property owner.

If you have the opportunity to purchase your premises, we encourage you to contact our office to discuss the above and help ensure a successful acquisition.

  • Legal structures of property ownership
  • Finance structures and terms
  • The interest rates on the loan, and whether you have fixed or variable facilities
  • Future cash flows under a property ownership arrangement vs lease arrangement
  • Annual rent reviews-typically annual CPI adjustments over the course of the lease, with a market review on lease renewals
  • Capital upkeep of the property including air conditioner replacement (a cost usually borne by the landlord)
  • How suitable the premises will be for future capacity and requirements

National Digital Health Strategy

We see a majority of Australians digitally connected across a vast range of industries such as travel, banking and education. The Australian Digital Health Agency (ADHA) was established in 2016 by the Australian Government who foresee that digital information is the heart to delivering high quality healthcare in the future. 

ADHA have conducted a widespread consultation with the Australian community and analysed the evidence which resulted in the development of the "National Digital Health Strategy". The anticipated benefits of the strategy includes – prevention of adverse drug events, reduction of medical errors, improved vaccination rates, improved healthcare accessibility and patient experience, greater access to people living in rural and remote areas, protection of the national digital health infrastructure and security of personal health information of Australians just to name a few.

The strategy consists of seven key priority outcomes to be achieved by 2022 which are aligned with the continuing roll out of MyHealth Record. The seven key priorities are as follows:















  • Health information that is available whenever and wherever it is needed.
  • Health information that can be exchanged securely.
  • High-quality data with a commonly understood meaning that can be used with confidence.
  • Better availability and access to prescriptions and medicines information.
  • Digital-enabled models of care that drive improved accessibility quality, safety and efficiency.
  • A workforce confidently using digital health technologies to deliver health and care.
  • A thriving digital health industry delivering world-class innovation.

There are two key elements that are required to drive the uptake and utilisations of Digital Health.  The opt-out trials in Northern Queensland (NQ) PHN and in the Nepean Blue Mountains (NBM) PHN regions proved that having the majority of the population registered for a MyHealth Record will facilitate greater utilisation. The national roll out of the opt-out approach for MyHealth Record has been accelerated and is expected to be completed by mid May 2018.

 

Quality Improvement Incentive

Following on from Considered Health Newsletter (Issue 10), we discussed the redesign of Practice Incentive Program and the proposed New Quality Improvement Incentive (PIP QI).

It has been established that of the 11 individual incentives only five PIP incentives will now end in their current form on 30 April 2018:

  • Asthma
  • Quality Prescribing
  • Cervical Screening
  • Diabetes, and
  • General Practitioner Aged Care Access.

These incentives will be replaced by the Quality Improvement Incentive.  

The Indigenous Health and Procedural General Practitioner Payment Incentives where initially included in the list of discontinuing incentives, will now be retained.

A summary of this information is available in the August 2017 Incentive News Update.

We will keep you further informed about PIP QI Incentives when it becomes available.

REMEMBER: to link your PRODA Registration Authority number to your practice profile to access and update your PIP details.

 

Medicare Benefits Schedule (MBS)

Based on the recommendations of the MBS Review Taskforce, the Government have announced the following key changes to be implemented by 1 November 2017 as follows:

  • Increasing the MBS rebate for selected procedures performed by general practitioners (GPs)
  • Removal of administrative block to allow patients to claim MBS rebates for consultations with general practitioners (GPS) during the 'aftercare' period
  • Blocking claiming of MBS items for subsequent attendances with any items in group T8
    (surgical operations) that have an MBS fee of $300 or more
  • Changes to gastroenterology services
  • Changes to MBS items for obstetrics services
  • Changes to ear, nose and throat MBS items 41674, 41789, 41793 and 41801
  • Changes to spinal x-ray services
  • Changes to bone densitometry services

Changes to colonoscopy services will take effect from 1 March 2018.

Please note all changes are subject to the passage of legislation.

Detailed fact sheets can be found HERE.

 

AAPM National Conference

The AAPM National Conference 2017 will be held in Perth on the 24-27th of October and is shaping up to be a magical event.  Offering an amazing program filled with acclaimed speakers the conference provides a concentrated learning experience encompassing all aspects of practice management in addition to the opportunity to network with colleagues, industry stakeholders and suppliers. 

 

 

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The information provided in this newsletter does not constitute advice. The information is of a general nature only and does not take into account your individual objectives, financial situation or needs. It should not be used, relied upon, or treated as a substitute for specific professional advice. We recommend that you contact Brentnalls SA before making any decision to discuss your particular requirements or circumstances. Brentnalls is not a partnership or a joint venture. Instead, the business of Brentnalls SA is independently owned and operated and it is an independent member of the Brentnalls Affiliation of Accounting Firms. Individual member firms do not accept responsibility or liability for the actions or inactions of any other individual member firm.
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