The questionHow do you know if your medical practice overhead is out of balance?
Short answerMedical practice overhead is out of balance when one of its three main costs (physicians, staff or billing) takes a larger share of revenue than in similar practices. To check, divide 12 months of each cost by gross annual revenue, counting write-offs in billing, and compare with practices of the same size, specialty and payer mix. Billing, counted all-in, is often the one out of line.
Picture a stool. Three legs, one seat. Get the legs right and it holds you all day without a second thought.
Get one wrong, a little too long or carrying a little too much, and you spend the day shifting your weight, wondering why you can't get comfortable. You don't notice the leg. You just notice the wobble.
Your practice works the same way.
Illustrative, not actual figures.
Ask yourselfDo you know which of your three legs is carrying more than it should?
Meet your three legs
Every dollar your practice brings in goes to one of three places.
- Physicians. Pay and benefits for every physician and advanced practice provider.
- Staff. Everyone else who keeps the doors open: front desk, medical assistants, nurses, managers and administrators.
- Billing. Not just your vendor's fee. Everything it takes to get paid: the fee, the staff time and outside contracts billing touches, and the revenue written off along the way.
And the seat? That's your margin. It's whatever the three legs don't take. It's the part you actually get to sit on.
Why this matters to you
Most owners know their total revenue and total overhead. That tells you the stool is standing. It doesn't tell you whether it's level.
A practice can look healthy on paper and still be wobbling, with one leg quietly carrying weight it shouldn't. You feel it as thinner margins, tighter months and the nagging sense that you're working harder for the same result.
Let's be clear about what this isn't: a case for paying anyone less. A good stool doesn't need shorter legs. It needs the right ones. Your physicians and staff are what make the practice work. The goal is balance.
And the leg most likely to be off is the one almost nobody has measured.
The leg nobody measures
It's billing. Almost every owner can tell you their vendor's fee. Far fewer have added up the staff time, the outside contracts and the write-offs that billing touches. Together, that is the total cost of medical billing.
That's not a wobble. That's a leg twice as long as the others.
So why doesn't anyone see it? Because most of the industry measures billing against collections, the money that actually came in. Write-offs never reach collections, so they quietly vanish from the math.
We measure against gross revenue instead: what you were owed for the care you gave, before anything got written off. Those write-offs are dollars you earned, and many of them can be reclaimed. So we count them.
The bargain that cost a fortune
One practice found a billing vendor that charged a fraction of its old fee. On paper, it was a no-brainer.
The catch: the new vendor only submitted claims. Coding, denial management and collections all landed back on the practice's own staff. Work piled up. Write-offs climbed.
Within a year, the practice's all-in cost of billing went from about 14% to over 40%. The cheaper invoice made billing nearly three times as expensive.
Figures are approximate.
Ask yourselfIf one leg dropped by 5 points of revenue, where would you put that money?
How to check your own stool
The math is simpler than it sounds, and it's a better overhead check than a single percentage.
- Start with gross annual revenue. What your practice was owed for 12 months of care, before anything was written off.
- Add up each leg for the same 12 months. Count write-offs in the billing leg.
- Divide each leg by gross revenue. Now you have three percentages, and whatever's left is your seat.
Here's the catch: a percentage on its own tells you almost nothing. Is 25% on staff high? Low? It depends on your size, your specialty and your payer mix. The number only means something next to practices like yours. That comparison is what shows you which leg is wobbling.
How Practice Now helps you level it
That comparison is exactly what most owners don't have, and it's where we come in.
- We fill in your stool with you. Bring your summary reports. We work out what each leg really costs, write-offs included.
- We show you which leg is wobbling. We compare each one with benchmarks for practices of your size, specialty and payer mix, and show you which leg moves your margin most.
- We start where the money is. For many practices, the first fixes are in billing and the revenue cycle, because those gains help pay for everything else. The billing leg comes back into line, the seat gets wider, and nobody's paycheck is the price of it.
You take care of patients. We'll make sure the stool holds.
Benchmarks are shares of gross annual revenue and vary by specialty, size and market.
Fill in your stool with us.
Start with a free first look at your numbers in a discovery call.
Terms used here are defined in the Practice Performance Glossary.