Average Medical Office Operating Expenses & How To Increase Your Profit Margin

Whether you’re thinking of starting a medical practice or you want to optimize your current medical office operating expenses, you should know what costs to include in your calculations.

Many physicians choose to avoid the high costs of owning a private practice by working in salaried positions at established medical offices. However, having your own physician’s practice operations gives you more freedom to choose how you operate and what kind of patient experience you offer.

Keep reading to learn more about the average operating expenses for a medical practice and how you can use modern medical technology to increase your profit margin.

The Average Medical Office Operating Cost

Medical practice expenses tend to increase every year as necessary costs steadily rise, such as staff health insurance premiums, medical technology, and third-party services like billing and documentation. A medical practice’s overhead costs can be between 60% and 70% of its revenue¹.

On average, annual expenses for medical practices sit between $600,000 and $800,000.

Breakdown of Operating Expenses

It’s essential to consider every potential operating expense when calculating your medical costs mand optimizing your budget. In this section, you can find a breakdown of operating expenses for medical offices, split up into several major categories. We’ll list types of costs for each category and provide examples of a few fixed and variable expenses you can expect as a private medical practice owner.

Building and Occupancy

The following are typical capital expenditures related to your medical office building:

• Rent, operating lease, and leasehold improvements
• Interest expense on loans for medical practice real estate
• Utilities
• Housekeeping and maintenance equipment
• Medical office building repair, maintenance, and security
• Furniture and equipment in reception areas, treatment and exam rooms, and admin areas

Information Technology

Here are a few examples of health information technology expenses for your medical office:

• Phone and internet service providers
• Computer and telecommunications equipment, hardware, and software
• Repair and maintenance of IT equipment, hardware, and software

Salaries and Benefits

You’ll be responsible for staff compensation, including payroll, salaries, bonuses, and benefits. The specific salary amounts for each position depend on your practice’s location and the experience of the employees.

Supplies and Equipment

Below are several variable costs related to supplies and equipment for your medical office:

• Drugs and vaccines used for medical care inside the practice
• Medical or surgical supplies and equipment used in providing patient care
• Radiology and imaging
• Laundry and linens
• Administrative supplies (books, postage, stationery, printing, etc.)
• Uniforms

Insurance

Insurance costs include premiums for malpractice and liability insurance for physicians and other employees at your practice. You might also have expenses for fire, flood, theft, general liability, and other types of insurance. The cost of your insurance depends on your location. For example, a Florida physician might be paying between $50,000 to $70,000 annually² for malpractice insurance, while doctors in Minnesota have much lower costs at $4,000 to $15,000 per year.

Marketing and Advertising

Marketing is essential for building your presence online and in your community, helping you attract new patients and become more profitable.

Billing, Payment Processing, and Collection

Depending on your budget and circumstances, you might have full-time billing and collections employees, which would factor into your staff salary expenses. However, you could outsource your billing and collections to external agencies. The cost of medical billing services can be between three to ten percent of your practice’s monthly collections³.

Professional Fees

Hiring professionals to handle management and financial tasks is optional, but typically worth the investment for the long-term success of your medical practice. Professional fees may include:

• Legal fees for attorneys who aren’t practice employees
• Consultation fees for management, financial, and other consulting services
• Accounting services

Continuing Education and Training

With the constant development of medical technology and research, it’s vital for workers in healthcare organizations to receive continuing education and training. While traditional classroom training is an option, it’s generally more expensive than purchasing online courses for your staff. Online training is also more convenient, allowing your employees to do lessons on their own schedule, wherever they want. The costs of continuing education depend on the provider and can range from free to more than $1,000 per course⁴.

Licenses and Permits

When you start your medical practice, you’ll have to pay initial fees for registering your business and trademarking the name and pay local fees for licenses and permits that a physician needs to practice in a specific state or county. As an example, the Colorado Medical Board charges $412 for their license fee⁵.

Taxes

Medical practice owners must pay business taxes every year, including an extra self- employment tax. How you pay taxes depends on the type of organization your medical practice is⁶, whether it’s a sole proprietorship, partnership, S corporation, or limited liability company (LLC). For example, physicians have unlimited personal liability in a sole proprietorship, and the owner doesn’t get a W-2. On the other hand, S corporations have protections against personal liability, only file income tax returns, and the owners do get W-2s.

Cut Down Operating Costs and Increase Revenue for Your Medical Practice

Weave can help you reduce your medical office operating expenses by combining a number of the healthcare tools and services you need for your medical practice, including phones, marketing, and practice management. Our convenient and easy-to-use platform can increase productivity and engagement, helping you provide a better experience and improved patient outcomes.

Sign up for free and try a Weave demo today.

References:

1. https://www.wphealthcarenews.com/understanding-the-complexities-of-overhead-in-a-physician-practice/#:~:text=The%20truth%20is%20that%20in%20today%E2%80%99s%20medical%20practices%2C%20it%20is%20actually%20between%2060%25%20and%2070%25.
2. https://doctorly.org/cost-vs-reward-of-opening-a-medical-private-practice/#:~:text=Malpractice%20insurance%20is,in%20Florida.
3. https://www.aafp.org/pubs/fpm/issues/2010/0300/p38.html#:~:text=In%20my%20experience%2C%20staff%20health%20insurance%20and%20retirement%20plans%20combined%20typically%20range%20from%203%20percent%20to%206%20percent%20of%20practice%20revenues.%20Your%20real%20challenge%20will%20be%20containing%20health%20insurance%20costs.%20Some%20family%20medicine%20practices%20have%20experienced%20annual%20premium%20increases%20of%20as%20much%20as%2050%20percent.
4. https://nap.nationalacademies.org/read/12704/chapter/11
5. https://medicushcs.com/resources/physician-licensure-application-fees-and-timelines-by-state#:~:text=Application%20Fee%3A%20%24412%20(includes%20process/license%20fee)
6. https://www.annarborcpas.com/physician-practices-and-their-tax-issues/