Practice Overhead – something to consider before opening your doors

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:
    business insurance
    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.
  • Loans:
    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.

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  1. Overhead considerations are very important. Something I didn’t realize was how much it would cost me to advertise. Not only did I place ads in the local phone book, but depending upon how large they were for each book (larger for the main community my practice services and smaller for the farther reaching listings), but also a web site and the cost to maintain that domain. I also built up my listing through a free service that comes with the land line phone number I have in my office for incoming calls. Verizon offers free listing/web site with your phone service. I expanded that and added what they call a pay per click service. You pay a premium for appearing higher in the list of searches, but only pay additional if a person searching for a provider, clicks on your name. It has been worth it. Besides insurance referrals, I receive a lot through the internet. So, depending on your referral sources and need for advertising, don’t forget to factor this in potentially.


  2. Happy 4th to everyone! Regarding advertising, I think if you do not have a patient base from a nearby clinic, and you are not in a rural area, I think advertising is critical. I need my own services, and would appreciate them, but I think it take a while for people to realize you exist. I am now in one article in the local paper, and will get myself into the more regular medical directory section, I am on Dex online, I did get the website, which has a couple links to it, I have the Verizon free phone book listing, and I have joined the chamber which puts me on their website, and in the mailings that come to each Wilsonville Resident twice a year. I will also be able to go to chamber meetings and network with other business owners. This has all been in the last 1-2 weeks. I have sent in the credentialing paperwork for many of the insurance carriers, and when I get listed on their panel I know that will help a great deal. I have business cards and brochures, but right now they are just in the building where I lease. Next step is to hand carry letters with brochures and cards to pharmacies, and other major merchants, the senior center, and assisted living centers. Once I do see a few patients, and get the kinks out, I will plan on having an open house open to merchants as well as residents of the community. Other than that, it will be word of mouth. I have belief in what I am doing, and am just hanging on that the finances will hold until the patients start coming in. I think it would be great if NPs could co op and share their resources including each others services. Right now there are political concerns, and I would really like to be able to be more relaxed about that as I am sure the other NPs would too, so we can just focus on supporting each other in our practices.. Any other suggestions again for getting the phone to ring would be appreciated! Carla/Oregon

  3. Carla, Get some flyers/business cards to the beauty shops, grocery stores, restaurants and convenience stores. Do all the public speaking that you can do through service organizations like Lions Club, Optimists, etc. Join one of those clubs, if you can, to get yourself visible. Pick the one that seems to have the most activities in your community. I am a member of Lions Club. As a result I am out in the community doing little league baseball concessions, selling fireworks, etc.. I am involved in the community and they embrace that.

    Ask the local newspaper to run a story about your business. Maintain a small ad in your local newspaper. My newspaper is weekly so I run a 2 inch x 2 column ad every week.

    I don’t do a lot in the phone books. We have three different books here. I put my money into Names & Numbers after doing some research. I went through the businesses and asked to borrow their phone book. N&N came out most frequently.

    I advertise in a couple of menus: bowling alley and truck stop.

  4. We actually get a large percentage of new patients from the phone books. The Yellow Book was a huge success and far less spendy than the Dex books. We were very lucky…the new book was published about 3 months after we opened and we had some excellent ad placements.

    Our newspaper has sent us very few patients. We even participated in a couple of special pull out sections on health – one of which was a directory for health care here on the harbor. It was a flop. We’ve spent most on the paper and have gotten the least. Of course, those supplments were not very professional looking either.

    I’d say a huge amount of people come from referrals – from friends, family and other providers. The next largest – they get assigned to us (hmm…that’s a whole other topic!).

    Make sure and asked everyone who comes in…where they are coming from. You want to keep track and not put your very hard earned money in ads that don’t bring in clients.

  5. Hi Laura, and Barbara,

    Thanks for all the tips. So far I am on line with Dexknows, and it comes up second in line for a large radius around Wilsonville. And if you click on it, it gives my website, and a theme, and it is nice. I have a one liner in the Verizon yellow and white pages. I am under clinics/health care in the chamber of commerce booklet that is mailed twice a year (just joined the chamber) and I am on their web page too. That will enable me to be in a networking commitee/breakfasts with other business people in the community. The newspaper did a free feature ad on me, that generated 4 phone calls, and 3 patients visits (my first ones). I do not know how many others read the article. I also have passed out so far (hand carried) to 3 dental offices, the pet store, the YMCA daycare, the learning tree (which is like a child care), the pharmacy, and am meeting again there next week with the store manager and the pharmacy manager. I have flyers posted at the nearby medical assistant college. I contacted the public relations for the two nearby school districts, and she is going to put me in touch with the school nurses and athletic directors so I can talk about sports physicals, and seeing sick kids or answer questions for the nurses. I plan on joining the kiwanas club, and participating as a health volunteer for the 5k run/walks and other health events (I used to be a runner for 35 yrs before a feet injury)…Next plan is to keep hitting merchants 5-10 per day, and the big businesses in town Mercedes, Honda, Toyota, Xerox, Mentorgraphics..I will make appts with their HR dept… My other idea is to get in the college newspaper or bulletin board, and maybe have a smoking cessation class, advertise about that, or advertise about free cholesterol screening with first visit, something like that… Then I will go to the churches and see if I can introduce myself (without them asking if I am a member :)..that is it for now..

    All 4 people I have asked where they heard, and it was from the feature newspaper article so far… I am keeping track.. I am seriously going to take a 2 day a week job, and keep the clinic open 4 days a week, and maybe evenings on the days I work (believing I get the job) as I do need money fast! When you start from scratch with no following clientele it is difficult, that is why I do not think patients will mind if I can see them that evening or the next day, since it is a given now, financially I have to work a second job… be well, Carla

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