Exclusive Survey
Practice expenses
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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 analyzedinvasive and noninvasive cardiology, gastroenterology, general surgery, and orthopedic surgeryfared 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 spendand earnmore, 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 moneyany 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
Great Lakes region
200,000
52
Rocky Mountain region
216,000
51
How spending varies
by practice size and type
Median
expenses
% of practice
revenue
Expense-sharing
195,200
52
Single-specialty groups*
264,700
50
Multispecialty groups*
250,000
55
Spending on selected items, by specialty
Non-
physician
staff salaries
Staff
fringe
benefits
Staff
retirement
Payroll
taxes
FPs
$80,000
$6,000
$5,000
$10,000
Internists
68,000
12,000
7,500
13,000
Ob/gyns
75,000
10,000
9,100
15,000
Pediatricians
70,000
9,600
7,400
10,000
Cardiologistsinvasive
100,000
19,000
12,000
15,000
Cardiologistsnoninvasive
85,000
5,000
10,000
20,000
Gastroenterologists
80,000
12,000
10,000
12,500
General surgeons
40,000
4,100
8,000
6,000
Orthopedic surgeons
100,000
10,000
15,000
10,000
Malpractice
insurance
Business
insurance
Clinical
supplies
Clerical
supplies
FPs
$9,000
$2,000
$12,500
$5,800
Internists
10,000
2,400
5,000
5,000
Ob/gyns
40,000
3,000
12,900
6,900
Pediatricians
8,500
2,000
21,900
5,000
Cardiologistsinvasive
18,000
3,000
10,000
5,000
Cardiologistsnoninvasive
15,000
2,500
9,000
4,100
Gastroenterologists
15,000
3,500
5,000
4,800
General surgeons
30,000
3,000
4,700
3,000
Orthopedic surgeons
29,400
5,000
16,000
5,000
Office
space
Utilities
Telephone/
fax
Equipment
rental
FPs
$21,700
$4,000
$4,400
$2,100
Internists
21,000
4,000
3,000
3,000
Ob/gyns
28,000
3,700
4,000
11,600
Pediatricians
24,000
2,500
3,000
1,700
Cardiologistsinvasive
24,000
4,000
2,400
26,000
Cardiologistsnoninvasive
28,000
5,000
5,000
6,000
Gastroenterologists
29,500
3,000
4,000
5,000
General surgeons
20,000
2,400
2,500
6,000
Orthopedic surgeons
30,000
4,000
3,500
1,000
Equipment
maintenance
Equipment
depreciation
CME
Auto
FPs
$1,700
$3,000
$2,000
$5,000
Internists
1,800
2,000
1,100
4,000
Ob/gyns
4,000
10,000
2,000
6,000
Pediatricians
1,200
3,600
1,300
4,000
Cardiologistsinvasive
3,000
10,000
2,000
5,000
Cardiologistsnoninvasive
1,500
2,000
2,000
5,000
Gastroenterologists
2,000
3,400
2,000
4,800
General surgeons
2,000
4,200
2,500
7,200
Orthopedic surgeons
1,300
4,000
2,000
5,400
Professional
fees
Lab
Other
taxes
Other
expenses
FPs
$2,000
$7,600
$3,000
$7,000
Internists
2,000
4,000
5,000
5,000
Ob/gyns
2,300
9,900
4,000
10,000
Pediatricians
1,100
800
2,400
5,700
Cardiologistsinvasive
2,500
1,500
3,000
20,000
Cardiologistsnoninvasive
3,000
3,000
5,000
5,000
Gastroenterologists
2,300
2,000
4,000
10,000
General surgeons
3,900
1,000
3,000
5,000
Orthopedic surgeons
2,500
4,400
5,000
3,000
Expenses rise with patient visits
and hours worked
Median expenses
Total patient visits
per week
% of practice
revenue
Median expenses
Hours worked
per week
% of practice
revenue
The following tables are a Medical Economics Web exclusive
How spending on big-ticket items varies
. . . by practice size
Non-physician office payroll
Salary
Fringe benefits
Retirement benefits
Payroll taxes
Office space*
Malpractice insurance premiums
Solo
$63,000
$7,000
$7,000
$13,300
$24,000
$12,000
Expense-sharing
79,000
7,000
5,000
5,800
24,000
12,000
2 doctors
72,000
6,000
7,500
9,000
24,000
14,000
3 doctors
89,400
10,000
7,300
10,000
25,000
17,000
4 doctors
117,500
10,000
10,000
15,000
30,000
21,000
5-9 doctors
121,100
14,000
8,000
19,000
24,000
15,200
10-49 doctors
82,000
17,500
20,000
10,000
30,000
17,000
50 or more doctors
70,000
10,000
15,000
15,000
30,000
25,000
Single-specialty groups
100,000
14,500
10,000
16,500
26,400
18,000
Multispecialty groups
120,000
10,500
6,900
10,000
24,000
15,200
How spending on big-ticket items varies
. . . by region
Non-physician office payroll
Salary
Fringe benefits
Retirement benefits
Payroll taxes
Office space*
Malpractice insurance premiums
EAST
$68,000
$10,000
$10,000
$13,000
$20,000
$15,000
New England
60,000
8,800
9,000
10,000
13,000
9,000
Mid-East
70,000
10,000
10,000
13,300
24,000
16,000
SOUTH
79,000
9,000
8,000
10,000
24,000
13,600
South Atlantic
78,000
9,000
7,500
10,000
24,000
13,000
Mid-South
80,000
12,000
12,000
10,000
30,000
12,000
Southwest
82,900
5,000
5,000
7,000
24,000
15,000
MIDWEST
67,700
10,000
8,000
10,000
18,800
13,000
Great Lakes region
67,700
10,000
6,000
5,000
18,800
11,400
Great Plains
65,000
11,500
10,000
10,000
19,800
13,000
WEST
64,000
9,700
6,000
13,800
26,00
12,000
Rocky Mountain region
81,000
10,000
5,000
20,500
32,000
13,000
Far West (including Alaska and Hawaii
60,000
8,600
6,000
10,000
25,000
11,000
How spending on big-ticket items varies
. . . and by gender
Non-physician office payroll
Salary
Fringe benefits
Retirement benefits
Payroll taxes
Office space*
Malpractice insurance premiums
Male
$75,000
$10,000
$8,400
$11,500
$24,000
$13,800
Female
60,000
6,600
6,900
9,100
17,400
10,000
Range of physicians' 2002 professional costs
2002 median expenses
FPs
GPs
Internists
Ob/gyn
Pediatricians
$500,000 or more
7%
7%
4%
12%
5%
300,000 - 399,999
11
3
10
25
10
200,000 - 249,999
15
15
13
17
18
150,000 - 199,999
18
13
25
10
13
Range of physicians' 2002 professional costs
2002 median expenses
Cardiologists (invasive)
Cardiologists (noninvasive)
Gastroenterologists
General surgeons
Orthopedic surgeons
$500,000 or more
31%
4%
6%
3%
25%
400,000 - 499,999
16
14
8
14
20
300,000 - 399,999
18
23
25
8
19
200,000 - 249,999
13
17
17
16
12
150,000 - 199,999
7
11
15
20
6
Gail Weiss. Exclusive survey: Practice expenses.
Medical Economics
Nov. 7, 2003;80:31.