The economics of medicine: solo practice

May 13, 2009 at 4:00 am (Economics of medicine)

I am concluding this miniseries on the economics of medicine by examining the cost of doing business as a solo practitioner. Earlier, we saw that living a decent lifestyle requires an annual salary of $170,000. Now let’s see what happens if you’re a solo practitioner and you want to generate that kind of income.

The first thing you’ll have to do when setting up your offices to hire an attorney to help in incorporating your business. You should never practiced under your name alone. Instead of being Half M.D., I should set up a company called Half M.D., PA, to distance myself from any liabilities.

You can get your business to pay the cost of malpractice insurance, health insurance, life insurance, and disability insurance—four things that all physicians will need. The cost of malpractice insurance is highly variable based upon specialty and location. In California, you might pay as little as $10,000. Or you can practice in the absurdly expensive region of Southern Florida where malpractice insurance for ob/gyns runs over $100,000. For my calculations, I decided to use $40,000 for malpractice.

Next, you’ll need to hire an office staff. You will need a nurse or medical assistant, a secretary, and someone who can take care of billing. The total annual cost for salary and benefits for these three employees can run as high as $150,000 depending on the level of talent and experience. You’ll also need to rent a building with enough examination rooms, a private office, and a break room. You can easily spend $5,000 a month on such a setup. You will then have to cover other overhead such as equipment. You can be as bare bones as having just syringes and patient gowns, or you can purchase an ekg machine ($2,000), an ultrasound machine ($100,000), or any number of other office-based equipment depending on your level of practice. I used the calculations below as a bare minimum. You should play around with the numbers for your own situation.

cost for sole practice

You will see that before taxes, you’ll need to earn over $700,000 a year. As you can imagine, being the only person in the office to pull in that kind of money is going to be very difficult. You may occasionally hear your family practice doctor say that he has not taken a vacation in over six years. He is not being facetious. Every day that you don’t work—whether it be due to an illness or vacation—is a day that you don’t get paid. I will be very generous with my calculations in saying that you are working 250 days a year in this example. If you can get an average of $100 off of each patient thanks to laboratory fees and “bill aboves,” you will have to see thirty patients a day to come out ahead. That gives you 16 minutes dedicated to each patient. I say “dedicated” because you really aren’t going to spend that much time with anyone. Half of your day will be dedicated to paperwork, calling back pharmacists, calling back consultants, writing letters for patients, and other miscellaneous tasks which do not generate money. In reality, you will more likely spend 8 minutes with each patient.

That’s 8 minutes to solve the patient’s new problem, work on health maintenance such as pap smears and cholesterol screening, council about smoking and drinking, consolidate medications, and fulfill any other tasks that the patient needs done. If you’re a pre-med reading this, you may have noticed when you’re shadowing a primary care physician, he runs into the room, looks at the patient’s chart, and quickly blurts out, “I see that you’re here for a headache. Have you had any nausea, vomiting, dizziness, lightheadedness, ringing in the ears, facial pain, difficulty swallowing or talking, tingling of the hands or feet, heart palpitations, urinary incontinence, or erectile dysfunction?”

The patient at this point is staring off into space and manages to say, “Uh, no.”

The physician will then reply, “Good, take this ibuprofen.” And as he is walking out of the room, he glances that the chart and says, “I see that you’re due for a colonoscopy soon. We’ll get that worked out the next time you’re here.”

You now know why primary care is a dying field. Who wants to see 30 patients in a day, only to be the lowest paid doctor?

P.S.: I should add that these calculations were done with the hopes that every patient ends in a full payment. Many insurance companies will not pay you on time, in full, or at all. There is a very real chance that you might have to work extra days to make up for lost income from deadbeat billings.

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10 Comments

  1. glass half-full said,

    I appreciate your honesty, and even your glass-half-empty outlook.
    However, I do think you’re overestimating some of these numbers.

    -Malpractice for a primary care doc is NOT 40K a year. It’s more like 10K. The primary care doc I worked for paid about 6K a year.

    -I used to work as a secretary for a primary care doc, and I did not make 40K. I made 25K, and that was considered good money where I lived (not a major urban area, but not the boonies either)

    -Manager/Coder: many single provider PCPs have one staff that serves as secretary AND manager. it’s fairly common to contract coding and billing out, usually for about 6-8% of the total payments received. I realize this comes out to a similar amount as the salary for a coder would, but you’re cutting out things like health insurance, taxes, SS, etc. for a full employee.

    -nurse: nurse-visits are billable, esp. if it’s an NP (or a PA). this means extra income. So even a single provider office usually has more than one person bringing in money. granted, the MD brings in most of the revenue, but nurses DO generate income.

  2. Get Real said,

    Since Glass half full is such an expert and would like to split hairs on an EXAMPLE and SCENARIO…to underestimate costs of practice because he/she has only seen half the glass and burden because they just don’t know but KNOW it MUST NOT be THAT BAD. Here are some other line items that aren’t included in this SIMPLE EXAMPLE. Maybe glass half full could define specifics on the cost of these line items.

    SALARY & BENEFITS
    MARKETING & ADVERTISING
    DONATIONS
    DUES & SUBSCRIPTIONS
    HOUSEKEEPING SERVICE & SUPPLIES
    LINEN SERVICE
    POSTAGE
    STAFF EDUCATION & TRAINING
    UTILITIES – ELECTRIC, GAS, WATER
    TELEPHONE
    TELECOMMUNICATION SERVICE
    ANSWERING SERVICE
    CLASSIFIED ADVERTISING
    BOARD OF DIRECTOR FEES
    MISCELLANEOUS EXPENSE
    EMPLOYEE APPRECIATION EXPENSE
    BANK FEES
    COLLECTION SERVICES
    BUILDING MAINTENANCE
    EQUIPMENT MAINTENANCE
    COMPUTER CONSULTING
    MINOR EQUIPMENT
    WASTE & DISPOSAL EXPENSE
    TRANSCRIPTION SERVICES
    LAB EXPENSE
    UNIFORMS
    GENERAL MEDICAL SUPPLIES
    PHARMACEUTICAL SUPPLIES
    OFFICE SUPPLIES
    ACCOUNTING/CPA SERVICES
    PAYROLL PROCESSING FEES
    LEGAL SERVICES
    BILLING SERVICES
    INFORMATION TECHNOLOGY
    PROFESSIONAL SERVICES
    OTHER CONTRACTED SERVICES
    OFFICE EQUIPMENT LEASE
    ALLERGY SUPPLIES
    OFFICE LEASE
    MALPRACTICE INSURANCE
    GENERAL LIABILITY INSURANCE
    SALES TAXES
    C.A.T. TAX
    PERSONAL PROPERTY TAX
    RITA TAX

  3. MacKenzie said,

    I’m starting medical school in August and you are depressing me.

  4. Morsetlis said,

    Funny. I will have to ask my Internist how he manages hospitalist + outpatient internist 6 days a week (7a-5p) without going insane.

  5. Insurance Guy said,

    Great read, though you made a lot of assumptions when doing your calculations. Like glass half-full said, malpractice insurance doesn’t have to be as high as you stated. I think that a doctor who is on top of their budget can cut down costs and make a decent profit when running a solo practice.

  6. Note said,

    Pleasae note that the 170 K that the practitioner makes is after tax. That means in reality before tax it should be around ( 170 K x 1.35) = 229 K not bad for a solo practitioner when compared to a hospitalist who makes around 200 K before tax.

  7. Allergy Treatment said,

    Life insurance is necessary that is why i always make sure that i get a reputable insurance company “,’

  8. RealDoctorPracticing said,

    The reality is just about as reported. I pay 20K malpractice (it ramps up after residency, 5k, 7k, 11k, 14k, 17k, then 20and a bit – the nurse above worked for a new Doc.), and sadly generate $85 per patient visit. We use an excellent biller, and offer all manner of services to keep that as high as it is. I keep overhead low, and use Nurse Practitioners as much as possible (at 90 to 120k per year) and still fight for every penny from Medicare, Medicaid, Blue Cross and United.

    It is tougher than people realize, and I recommend to my kids to go into business, law or another field where the government can’t stipulate your income or expected performance.

    When I go to the grocery, and select $120 worth of goods, they will not accept $47.53 for that as I must. And since I am a decent human, I can’t gouge self pay patients for higher rates; I work hard, and still the patient’s demands, and the government’s demands, and the hours in the day all leave not a lot to show for it.

    The long and short of it is that there are lots of easier ways to make money. I am exploring some of them.

    Good luck everyone!

  9. handsomephysici86.wordpress.com said,

    Wonderful blog! I found it while browsing on Yahoo News.

    Do you have any tips on how to get listed in Yahoo News?
    I’ve been trying for a while but I never seem to get there!
    Thanks

  10. M. Mulvihill, MD said,

    Does anyone know if you can get any tax deduction for uncompensated procedures, done while on-call? (Procedures such as; vaginal deliveries, C-Sections, Laparoscopies for ectopics or tossed ovaries, D&C’s) I take ER call for free. Also in the call circle there is no compensation for delivering other doctor’s patients. Is there any way to document a loss or deduction?

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