I think the fear for many practices when they are first getting started is how they are going to pay their bills. Often we are not quite sure how many patients are going to come through the doors, how long it’ll take for the insurance companies to pay us, and if there will be enough to cover our initial overhead.
My initial figures were rather rudimentary. I figured out the basics of what I thought would be overhead, and divided that by my lowest expected reimbursement (Medicaid in managed care). That gave me a rough idea of how many patients I needed to see per month.
It also gave me lots of breathing room. For example, I used the Medicaid reimbursement amount for a 99213 visit. In reality, most of the folks I see are really a 99214 (I may be family practice, but I seem to practice internal med). In addition, most insurances (with the exception of managed care) reimburse a higher rate.
For example: assume that my overhead is $10,000 per month. If you divide that by $50, you come up with 200 patient visits per month in order to meet that overhead. (These figures are just for illustrative purposes, and certainly do not represent our state Medicaid rate for a 99213 — we can only wish).
There are lots of things to take into account when you’re looking at overhead. It will certainly depend on your practice niche, but some things to consider are as follows.
- Office considerations:
Space lease and or mortgage
Utilities — water, sewer, basic garbage, electricity, and heat
Telephones — this will depend greatly depending on the number of lines you wish to have. For example we have three telephone lines (only one has unlimited long distance, and necessity in our rural area), plus one dedicated fax line = a total of four lines. And sometimes that’s not enough.
Internet access — depending on where you are located you may have DSL or cable. Do not even consider dial-up.
- Staff considerations:
Employee costs: self-employment tax, federal tax, unemployment tax, workers comp and tax. Depending on where you are some of these taxes will be both state and federal.
Employee benefits: this can be rather expensive, especially if you are looking at health care plans. Some plans can cost you several hundred dollars per employee per month. Don’t forget vacations, sick days, and the like.
- You! Don’t forget to figure in what you need for your personal living expenses as well. Unless you have someone else paying your mortgage, you’ll have to figure that in as well.
- Medical practice considerations:
disposal of medical waste
consumable supplies — paper table, drapes, gowns, speculum’s, soap, etc.
lab equipment — microscope slides, UA dip sticks, A1c testing etc.
liability insurance for you and your clinical staff. While not a monthly cost, one still needs to consider this into their overhead.
- Office/practice management considerations:
paper for copiers and faxes as well as toners and inks
if you’re using paper charts you’ll need chart material
consumables such as paper towels, toilet paper, and tissue
- Specialty considerations:
This will depend greatly depending on your practice. For instance someone specializing in skin care may have specialty equipment and supplies that are needed.
Did you take out a loan to open your office? What about to finance your new equipment? Did you use credit cards to purchase those supplies? Figure in your repayment cost into overhead as well.
Of course, the above list is not at all inclusive, but it should give you a place to start thinking about the realities of overhead.