Exclusive survey: Practice expenses

November 1, 2003

Our Continuing Survey lets you take a closer look at the costs of doing business, from automobiles to utilities.

 

Exclusive Survey
Practice expenses

Jump to:Choose article section...How much doctors spendOverhead varies with age, experience and gender How spending varies around the country

Our Continuing Survey lets you take a closer look at the costs of doing business, from automobiles to utilities.

By Gail Garfinkel Weiss
Senior Editor

Primary care physicians spent more than half of their 2002 practice revenue on operating expenses, according to the latest Medical Economics Continuing Survey, which samples MDs and DOs in office-based practice. Doctors in the specialty fields we analyzed—invasive and noninvasive cardiology, gastroenterology, general surgery, and orthopedic surgery—fared a bit better. But even those doctors spent from 43 to 50 percent of their earnings on overhead.

The biggest outlay was for office payroll, which easily outpaces the other two high-priced items: rent (or mortgage payments) and malpractice insurance premiums. "Without question, the greatest rise in expenses in California and Arizona over the past 24 months has been related to staffing and insurance," says Judy Capko, a consultant in Thousand Oaks, CA.

"Workers' compensation has nearly doubled, and unemployment costs are increasing even more rapidly," she adds. "Some practices are reducing fringe benefits and limiting pay hikes to the increase in the Consumer Price Index."

The situation is the same in the Northeast. Rising health insurance costs are pushing staff expenditures skyward, according to Kenneth Bowden, a consultant in Pittsfield, MA. "It used to be a fairly minor line item; now it's way off the charts. As a result, some doctors are asking employees to pay as much as 50 percent of their health insurance premiums." Malpractice costs, too, are "out of control," Bowden notes, "especially in Connecticut and Massachusetts, to the point where it's driving doctors out."

Overhead tends to peak during the "middle" practice years, according to Will Latham, a consultant in Charlotte, NC. "You typically get a U-shaped curve because in the early and late years of practice, revenue production is lower, resulting in higher overhead percentages. During the middle years, though, doctors spend—and earn—more, so overhead percentages are lower."

But lower percentages aren't always a good sign. "Even though the solo and expense-sharing practices show lower overhead percentages than larger groups, they're not necessarily better off," Latham says. "Many small practices are 'anorexic' and aren't doing the things they need to survive and thrive on a long-term basis."

Indeed, the "penny-wise, pound-foolish" rule applies regardless of location or practice size, says Paul Angotti, a consultant in Monument, CO. "You can't just add staff and expect to make more money—any more than you can cut staff and expect to save money. You need a strategic plan for the entire organization. Inherent in such a plan is a good collection strategy. The biggest problem in medical groups is their failure to collect what they have legitimately earned. Burgeoning accounts receivable commonly skew the data when you're looking at percentages of overhead."

Other findings from our survey indicate that women physicians' expenses account for 56 percent of their practice revenue, compared with 51 percent for male doctors. "Women physicians invariably generate less revenue than their male counterparts do, because they typically work fewer hours," says Bowden. "And because most practice costs are fixed, doctors who put in less time at the office shell out a higher percentage of their income to meet expenses."

The consultants do point to a few bright lights on the expense horizon:

• A slow but inexorable trend toward electronic medical records and billing software has spurred a countrywide drop in billing and administrative expenses, says Angotti.

• "Physicians are getting smarter about analyzing and dumping bad managed care plans, which means a significant drop in administrative expenses," Angotti notes. "For a long time, the doctor's reaction to low-reimbursing contracts was to see more patients. But overhead expenses were going through the roof because of the need to add staffers to process all those patients and claims."

• The increasing use of e-mail means less money spent on postage, stationery, and telephoning, according to Bowden, who also notes that Yellow Pages advertising is giving way to Web site promotions. "Having a Web site isn't necessarily cheaper than advertising in the Yellow Pages," Bowden says, "but it gives a practice more cachet and lowers administrative costs by allowing patients to get information about the practice without calling the office."

How did your spending last year compare to that of other physicians? Check the charts and tables that follow. Our survey methodology is detailed in the Sept. 19, 2003 issue.

How much doctors spend

Overhead varies with age, experience and gender

 

How spending varies
around the country

 Median expenses% of practice revenue
EAST$174,800    51%
New England174,80050
Mid-East175,00052
SOUTH$210,000    51%
South Atlantic210,00052
Mid-South200,00050
Southwest225,20050
MIDWEST$200,000    53%
Great Lakes region200,00052
Great Plains200,50054
WEST$200,000    53%
Rocky Mountain region216,00051
Far West198,60053

 

How spending varies
by practice size and type

Median expenses% of practice revenue
Solo$184,000   51%
Expense-sharing 195,20052
2 doctors 200,00055
3 doctors 210,00050
4 doctors 300,00054
5-9 doctors 259,00055
10-24 doctors 350,00049
Single-specialty groups* 264,70050
Multispecialty groups* 250,00055

 

Spending on selected items, by specialty

Non- physician staff salariesStaff fringe benefitsStaff retirementPayroll taxes
FPs$80,000$6,000$5,000$10,000
GPs50,0007,2006,0009,000
Internists68,00012,0007,50013,000
Ob/gyns75,00010,0009,10015,000
Pediatricians70,0009,6007,40010,000
Cardiologists—invasive100,00019,00012,00015,000
Cardiologists—noninvasive85,0005,00010,00020,000
Gastroenterologists80,00012,00010,00012,500
General surgeons40,0004,1008,0006,000
Orthopedic surgeons100,00010,00015,00010,000
Malpractice insuranceBusiness insuranceClinical suppliesClerical supplies
FPs$9,000$2,000$12,500$5,800
GPs9,3001,8006,0005,000
Internists10,0002,4005,0005,000
Ob/gyns40,0003,00012,9006,900
Pediatricians8,5002,00021,9005,000
Cardiologists—invasive18,0003,00010,0005,000
Cardiologists—noninvasive15,0002,5009,0004,100
Gastroenterologists15,0003,5005,0004,800
General surgeons30,0003,0004,7003,000
Orthopedic surgeons29,4005,00016,0005,000
Office spaceUtilitiesTelephone/ faxEquipment rental
FPs$21,700$4,000$4,400$2,100
GPs12,5003,0003,0001,000
Internists21,0004,0003,0003,000
Ob/gyns28,0003,7004,00011,600
Pediatricians24,0002,5003,0001,700
Cardiologists—invasive24,0004,0002,40026,000
Cardiologists—noninvasive28,0005,0005,0006,000
Gastroenterologists29,5003,0004,0005,000
General surgeons20,0002,4002,5006,000
Orthopedic surgeons30,0004,0003,5001,000
Equipment maintenanceEquipment depreciationCMEAuto
FPs$1,700$3,000$2,000$5,000
GPs2,0003,3001,7003,500
Internists1,8002,0001,1004,000
Ob/gyns4,00010,0002,0006,000
Pediatricians1,2003,6001,3004,000
Cardiologists—invasive3,00010,0002,0005,000
Cardiologists—noninvasive1,5002,0002,0005,000
Gastroenterologists2,0003,4002,0004,800
General surgeons2,0004,2002,5007,200
Orthopedic surgeons1,3004,0002,0005,400
Professional feesLabOther taxesOther expenses
FPs$2,000$7,600$3,000$7,000
GPs1,5004,4003,0005,000
Internists2,0004,0005,0005,000
Ob/gyns2,3009,9004,00010,000
Pediatricians1,1008002,4005,700
Cardiologists—invasive2,5001,5003,00020,000
Cardiologists—noninvasive3,0003,0005,0005,000
Gastroenterologists2,3002,0004,00010,000
General surgeons3,9001,0003,0005,000
Orthopedic surgeons2,5004,4005,0003,000

 

Expenses rise with patient visits
and hours worked

Median expensesTotal patient visits per week% of practice revenue
$149,000Under 5043%
180,00050-7453
198,00075-9950
200,000100-12451
239,900125-14956
210,000150-17452
300,000175-19958
270,000200 plus52
Median expensesHours worked per week% of practice revenue
$100,000Under 3047%
160,00030-3954
189,00040-4955
240,00050-5953
230,00060-5950
247,50070-7950
200,00080 plus53

 

The following tables are a Medical Economics Web exclusive

How spending on big-ticket items varies
. . . by practice size

 Non-physician office payroll
SalaryFringe benefitsRetirement benefitsPayroll taxesOffice space*Malpractice insurance premiums
Solo$63,000$7,000$7,000$13,300$24,000$12,000
Expense-sharing79,0007,0005,0005,80024,00012,000
2 doctors72,0006,0007,5009,00024,00014,000
3 doctors89,40010,0007,30010,00025,00017,000
4 doctors117,50010,00010,00015,00030,00021,000
5-9 doctors121,10014,0008,00019,00024,00015,200
10-49 doctors82,00017,50020,00010,00030,00017,000
50 or more doctors70,00010,00015,00015,00030,00025,000
Single-specialty groups100,00014,50010,00016,50026,40018,000
Multispecialty groups120,00010,5006,90010,00024,00015,200

 

How spending on big-ticket items varies
. . . by region

 Non-physician office payroll
SalaryFringe benefitsRetirement benefitsPayroll taxesOffice space*Malpractice insurance premiums
EAST$68,000$10,000$10,000$13,000$20,000$15,000
New England60,0008,8009,00010,00013,0009,000
Mid-East70,00010,00010,00013,30024,00016,000
SOUTH79,0009,0008,00010,00024,00013,600
South Atlantic78,0009,0007,50010,00024,00013,000
Mid-South80,00012,00012,00010,00030,00012,000
Southwest82,9005,0005,0007,00024,00015,000
MIDWEST67,70010,0008,00010,00018,80013,000
Great Lakes region67,70010,0006,0005,00018,80011,400
Great Plains65,00011,50010,00010,00019,80013,000
WEST64,0009,7006,00013,80026,0012,000
Rocky Mountain region81,00010,0005,00020,50032,00013,000
Far West (including Alaska and Hawaii60,0008,6006,00010,00025,00011,000

 

How spending on big-ticket items varies
. . . and by gender

 Non-physician office payroll
SalaryFringe benefitsRetirement benefitsPayroll taxesOffice space*Malpractice insurance premiums
Male$75,000$10,000$8,400$11,500$24,000$13,800
Female60,0006,6006,9009,10017,40010,000

 

Range of physicians' 2002 professional costs

2002 median expensesFPsGPsInternistsOb/gynPediatricians
$500,000 or more7%7%4%12%5%
400,000 - 499,999544145
300,000 - 399,999113102510
250,000 - 299,9999451112
200,000 - 249,9991515131718
150,000 - 199,9991813251013
125,000 - 149,99989929
100,000 - 124,999117847
80,000 - 99,999312535
60,000 - 79,9996124—*2
40,000 - 59,999—*66—*1
20,000 - 39,99927514
Less than $20,00052328

 

Range of physicians' 2002 professional costs

2002 median expensesCardiologists (invasive)Cardiologists (noninvasive)GastroenterologistsGeneral surgeonsOrthopedic surgeons
$500,000 or more31%4%6%3%25%
400,000 - 499,999161481420
300,000 - 399,999182325819
250,000 - 299,999213968
200,000 - 249,9991317171612
150,000 - 199,99971115206
125,000 - 149,99934784
100,000 - 124,999145101
80,000 - 99,9991—*341
60,000 - 79,999222—*—*
40,000 - 59,99952254
20,000 - 39,99914—*2—*
Less than $20,0002314—*

 



Gail Weiss. Exclusive survey: Practice expenses.

Medical Economics

Nov. 7, 2003;80:31.