The Tricky Economics of Running a Medical Practice

July 28, 2014

Unless a member of the medical practice team is intimately involved in the cash flow process, they probably don't know what is affordable for the practice.

I found a post in another forum from an employee of a physician's office in which the author complained that she hadn't received a raise in over a year even though she knew the practice could afford it. Now maybe she's right. Maybe the practice could afford it. Did she actually know this? Maybe. Maybe she did the finances for the office; she doesn't say. But I would venture to say that the average staff member, or even employed physician, has no idea what the practice can and cannot afford.

The cost of running an office goes up every year. Rent, phone, electricity, gas, Internet - the rates go up for everyone. Then there are the consumables: paper, toner, syringes, gloves, etc. The price goes up on those, too. And postage! I know 3 cents doesn't sound like a lot, but when you mail 30 items to 40 items a day, it adds up. Then there's insurance - medical, business, liability - the premiums increase every year. And although furniture and appliances don't have to be changed frequently, when you do need new ones, they cost more than the originals. With the recent demise of Windows Vista, we've had to change out several of our computers.

Furthermore, giving someone a raise costs more than just the raise. It changes your workers' compensation premiums, too. And if the employer is making contributions to a retirement plan based on a percentage of the employee's income, then that goes up as well.

And while costs go up for everybody, other businesses can offset their costs but passing it on their consumers. If the U.S. Postal Service needs to spend more on gas and salaries, they increase the cost of stamps. If it costs more to make a ream of paper, you sell the paper for a higher price. But physicians' office can't do that. As a matter of fact, physician reimbursement has been declining. So while expenses have gone up, revenue has gone down.

Most physicians or their managers will try to keep the office running seamlessly despite lean times to keep staff morale high and to continue to provide patient care. I myself have gone weeks without taking a salary so that I can make payroll. I know other physicians do the same. This is especially true around tax time when all the retirement contributions need to be made and taxes have to be paid. This also happens around the practice's anniversary because that's when a lot of annual expenses come up.

Now, I'm not saying that staff members don't deserve a raise from time to time especially if they perform well. I'm just pointing out that unless someone is intimately involved in the cash flow process, they probably don't know what is affordable for the practice.