Practice Management Q&As

November 18, 2005



The costs of doing business

Q. What percentage of my practice revenue should I expect to go toward overhead?

A. Operating costs typically consume 50 to 60 percent of a primary care physician's receipts.

Q. I've been offered my dream job in another state. The salary looks good to me, but I know that real estate prices and general living costs are considerably higher there. How do I figure out whether I can afford to take the job?

A. You need to project a detailed personal budget, with estimates of your monthly take-home pay and monthly expenses, to determine if your "dream job" can become a reality.

Start by having your accountant prepare a personal income tax projection, based on your new gross salary, with estimates of real estate taxes and mortgage interest. This will give you an idea of your income tax obligations and allow you to figure what your future monthly net take-home pay will be.

Next you'll need to estimate your future expenses. So tally your current monthly expenses, starting with the big items, like payments on your mortgage and car and education loans. Add what you now spend each month on food, clothing, utilities, entertainment, etc.-but add an additional 10 to 25 percent, or whatever is appropriate based on figures at your disposal, to account for your new state's higher cost of living.

Comparing the estimates of your future take-home pay and expenses should give you an idea of whether you can afford to take the new job.

If it ain't broke, don't fix it

Q. The doctor whose practice I'm buying has warned me that some of his longtime patients won't be too happy with my policy of full payment at the time of service. They're used to making partial payments, and expect to be billed for the balance. What's the best way to avoid potential problems?

A. Rethink your policy. If the retiring physician had no problem with his payment policy, it would be foolish to change it now. Longtime patients will find it hard enough to adjust to a new doctor, and the more changes you make, the less likely they'll be to stick with you. Later on, when they're more comfortable with you, offer a small cash discount for full payment at the time of service.

However, if your predecessor had a collections problem, you should definitely go ahead with your plan to introduce a payment-at-the-time-of-service policy. But be positive about it. Encourage your patients to pay by saying something like, "To help keep bookkeeping costs down, we ask that you pay when you're in the office. That way we can keep our fees affordable for everyone."

And by all means, arrange to take payment by credit card.

Collecting from a deceased patient's estate

Q. What's the best way to collect payment for my services after a patient has passed away? Currently, we bill the estate, sending the statement to the patient's last known address. Usually, it's returned undeliverable, or we never hear from the next of kin, so we wind up writing off the charge as bad debt. Is it worth the trouble to file a claim against the decedent's estate?

A. If the balance is large, you can consider billing the estate. But think twice about filing a claim. That will almost certainly mean negative publicity for your practice if word gets around.