How Much Money Will I make in my own Practice? http://npbusiness.org/money/

How Much Money Will I Make?

Nurse practitioners and other clinicians who are starting a practice often ask this question. Indeed, all of us want to know when and how much we can expect in any new job. Those of us starting a practice are even more concerned about it. And here’s the difference.

When you are offered a job, you are told what to expect in salary and benefits. You will know how much money you will receive per month, per week, per day, per patient. Perhaps you’ll be paid a base salary with a bonus based on productivity. But you KNOW, for the most part what to expect.

What the employed clinician does not have to worry about is all the variables that the business owner (or your employer) has to consider. Revenue that is generated in any outpatient practice (for the most part) is still a fee per service model. In other words, when you see a patient, you (hopefully) get paid based on work done and billed to the payer.

But this is where it gets interesting. First of all, it’s highly unlikely that the billed amount is the amount the practice will be reimbursed. The allowed reimbursement varies from payer to payer based on what you might have been able to negotiate, as well as provider designation (i.e., NP, PA, MD/DO).

For example, for an average office visit of 99213 (return patient) in primary care, you might see allowed rates from $25.00 to $97.00. If you are doing any add-on services such as a UA, immunization, punch biopsy – you may (or may not) get reimbursed additionally. You’ll need to include the correct modifiers and diagnostic codes for that second service. However, be aware, that more often these days, payers are bundling services together and only paying for one service.

So to get back to the original question…”how much money will I make?”, you need to understand the actual reimbursed amounts and cost variables.

Know your Numbers

Gross receipts depend on:

  1.  Contracted allowable rates per payer
  2. Payer mix
  3. Number of patients seen
  4. The office’s ability to collect co-pays, co-insurance and deductibles
  5. Ability to verify insurance
  6. Denial of claims now and in the future (where money is “taken back”)
  7. The effectiveness of the billing team to follow up on accounts receivable and to collect on outstanding claims.

Cost variables/Practice Overhead

  1. Cost of bill insurance companies
  2. Payment failures (ie no payment, bounced payments
  3. Salaries and benefits (including yours)
  4. Building and utilities cost
  5. Supplies
  6. Insurances, licenses
  7. IT costs
  8. Subscriptions including journals, software, EMRs, medical references (ie UpToDate or other references)
  9. Taxes – federal, state and local
  10. Other (including any fees the NP and PA must pay to a collaborating physician)

As you can see, it’s critical that you are able to generate enough revenue to cover cost and more on an ongoing basis in order to keep the practice open and growing. This is one reason why it’s essential that practices establish budgets and monitor their cash flow and profit and loss statements on an ongoing basis.

And for those of you employed, knowing what it takes to run a practice and keep it profitable will only make you a more valued employee. I don’t know about your employer, but every practice owner I know would find the employee with this type of understanding highly valuable and compensate accordingly.

After all, it creates a win-win situation for both of you.

Feel free to share this content with your colleagues and leave a question or comment below.

Comments 4

  1. Hi Barbara,
    As a loose estimate, in my state (Montana) we can figure we’ll get $.62 for every dollar billed to Medicare, and $.50 for every dollar we bill to Medicaid. Private insurors have been up to $.85 for dollar billed, and Work Comp can be as much as dollar per dollar (although it can be more hassle). That’s for an NP, not for an NP working “incident to” an MD. With the Medicaid Expansion, people might want to be careful about loading their patient lists with that payor designation – it about breaks even on the overhead – no profit at all.

  2. Post
    Author

    Good points Jill.

    When looking at insurance, it’s so important to look at the mix of patients. While we all want to help everyone, we cannot if we wish to keep the doors open and serve our patients.

    ~ Barbara

  3. NPs looking to start their own practice needs to be told the blank truth. Just because you bill out a claim does not mean you will get paid. You might never get even a dime.
    So, to answer the question ‘how much money will I make?’ Well, it depends, zero dollars at times. And you will work harder than ever. Medicare reimbursement is 20% lower for NPs than for MDs, even though the NP faces the same overhead costs as the MD.
    Although making money is the goal, it should not be the only motivation to opening your own practice. Even MDs are opting for employment in many cases. Any NP looking for a guaranteed monthly paycheck and ‘benefits’ should never consider opening their own practice.
    This is just my opinion.

  4. Post
    Author

    I agree, Milca. We have to be savvy when starting out and learn as much as we can.

    • We cannot start with a guaranteed monthly paycheck and benefits. You need to budget it out, understanding that making money will increase as the practice grows.
    • As newly employed NPs, practices are initially losing money on a new employee until their productivity reaches a certain threshold.
    • Medicare reimbursements are 15% lower for NPs and PAs (Not 20% – gets confusing because MCR pays 80% of allowable)
    • It’s true overhead is generally the same, though we do still have lower liability insurance rates.

    Anyone in business, providing services, should be focused on making money. A business will not survive unless you are making money. No money = No service. Entrepreneurship – in any business is not the easiest way to go and it’s not for the faint of heart. Careful planning and executing is necessary. You expect ups and downs. And in the end, those of us that survive, never want to go back to being employees again.

    Best wishes in your practice!

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.