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Research shows that today’s average medical practice overhead is actually between 60% and 70%.
Overhead is calculated as costs as a percentage of revenue. Basically, this means any and all revenues that don’t go into your pocket.
Almost every medical practice can lower expenses somewhere to reduce overhead. The trick is finding out where and how much. The following information will get you started in the right direction with:
MGMA’s Cost and Revenue Survey guide takes the following into account:
MGMA research shows that overhead expenses typically take up 60% of practice revenue.
So, if a physician brings in $50,000 in revenue each month (which is roughly $76,000 in charges minus adjustments and write-offs), his or her monthly overhead should be about $30,000, according to the benchmarks.
Revenue * 0.60 = benchmark overhead
Total operating expenses (minus provider salaries and benefits)/total collections = actual overhead
To find your practice’s actual numbers, you may need to get your accountant involved. They can tell you your current overhead and how much you’re spending in different areas. If it doesn’t match up with industry benchmarks, you can definitely shave off some expenses.
When reviewing your numbers for a medical practice business plan, focus on the following:
This is the overarching goal for your action plan when analyzing medical practice overhead, focusing on improving financial management.
MGMA, the Medical Group Management Association, suggests there are three options for reducing medical practice overhead:
Also, keep in mind you will not be able to lower expenses equally across the board. Some expenses increase productivity, to the point where investing more in those areas might actually provide a greater return on investment than cutting costs.
AAFP provides a comprehensive 12-step plan for reducing medical practice overhead. Below are the action items they suggest. Check out the full article here!
Once you’ve reviewed the areas you can cut expenses, it’s time to look at how best to organize the expenses that contribute to your revenue.
Michael Jutras, MD, says investing in their own practices is one of the toughest concepts to get across to physicians.
At the end of the year, they flush everything out and don't reinvest back in the business. Then they wonder why the HMOs and hospitals are so strong, and why they don't have the systems to be successful.
Working with a Management Services Organization (MSO) keeps you in control of your practice while opening up more time to spend with patients. It’s an easy investment that can exponentially increase your productivity.
Looking to learn more about MSO practice management? Use the resources below 99MGMT has put together as your one-stop medical practice management guide:
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