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20% Profit Margin for a Primary Care Practice

My buddy owns multiple fast-food restaurants. Each location has a net profit margin of around 15% after the food costs, rent, employee payroll, insurance, repairs, and utilities. The average primary care practice doesn’t do much better than that. The kicker is that my buddy doesn’t have to flip burgers or put his finger in someone’s ass. This makes primary care profit margins too low to be worthwhile.

Though there are definitely larger primary care practices owned by a physician with multiple associate physicians or NPs and PAs that are netting $500k or even close to $1m a year, those are behemoths that require an MBA to run.

Primary Care Practice Overhead

When I considered starting a brick-and-mortar primary care practice, I listed all the overhead. Forget the headache, for now, let’s focus on all the outgoing bills:

  • Rent or mortgage
  • MA salary
  • RN salary
  • Billers
  • Malpractice
  • Property insurance
  • Workman’s comp insurance
  • Utilities
  • Office supplies
  • Medical equipment
  • Office buildout

Now let’s discuss the mental overheads, which are the things I need to manage on a day-to-day basis on top of seeing patients:

  • Negotiating insurance contracts
  • Hiring/firing employees
  • Negotiating rental rates
  • Building inspection
  • ADA compliance

Clinic Overhead

These are all the various overheads I can think of when running a primary care practice that is physical. The two biggest are rent and payroll.

Rent is tough because you can easily lose $5k/mo for a suitable space that still needs a hefty remodel. And leases have to be renegotiated.

You might say that purchasing the property is better, but commercial loans aren’t easy to get and aren’t cheap. Yes, I get to own the building, but I paid nearly $1m with a monthly mortgage of $12k.

Oncology Practice Overhead Example

You might say, but Dr. Mo, I ain’t no lowly general practitioner – shit, I done got my specialty in ENT! I’m smart – I can make much more money. Yes, you could. You’d have a higher gross income, but you also have more equipment, more malpractice, and definitely more employees to deal with. So, your overhead is higher, but you get to bill the insurance companies more. Maybe you’ll take home $700k a year, but you got your ass handed to you running that practice.

An urgent care practice might have an overhead of around 15% when you consider the in-house labs, x-rays, and procedure trays.

I might be exaggerating, but here is the breakdown of a friend’s oncology practice overhead to give you a sense of what the numbers look like. Let’s use the example of an onc office in Los Angeles in a medical office building without major signage, 5 employees, and a patient volume of 4,500 a year, which is a lot.

CATEGORYINCOME
Chemo administration$100,000
Office consults$500,000
Lab services$10,000
Imaging$5,000
Pharma speaking gigs$12,000
Clinical trial enrollment$2,000
TOTAL INCOME$629,000
CATEGORYSPENDING
Staffing$210,000
Billing$50,000
Rent$40,000
Utilities$8,000
Maintenance$4,000
Supplies & chemo drugs$35,000
IT & software$5,000
Malpractice insurance$18,000
Other insurance$10,000
Website & marketing$6,000
Legal$3,000
TOTAL SPENDING$384,000

This practice has been around for some time, and though the numbers look great on paper, this friend began an auditing process because she feels that she isn’t taking home the supposed $245k. She believes she’s not taking in more than $10k/mo, which means she’s underestimating her overhead.

Working for Someone Else

If I were to work for someone else, I could get around $110-$130 per hour. My friend from above works 50 hours a week, if not more. If I’m doing the math right, it’s a net income of $70, which is right around what I would be making.

The difference is that I come home and can disconnect. The headache and stress are on my employer. Of course, I don’t get to own my own business and have a boss to report to.

Alternative Primary Care Practice Models

We have seen many different primary care practice models pop up over the years. Concierge, cash-only, subscription-based, and even high-volume Medicaid-Medical practices. There is also the virtual model which is too new to really comment on.

The best way to increase revenue seems to be by decreasing overhead. The problem is that this means you have to hire less experienced staff, pay them less, accept the turnover, and maintain a less competent staff. Think DMV versus Starbucks.

Hiring more PAs and NPs instead of MDs and DOs is another way to keep the overhead low, but then you are also marketing to a different patient population.

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