Medical Practice Costs Breakdown

Though Harold Jacobson may well be an excellent systems analyst, it’s clear from reading his letter that he has never operated a medical practice [Letters, “What’s Up, Doc?” 9/3/09]. If he had, the answer to his “conundrum” would have been immediately obvious.

First, your estimate of $70 per 15-minute visit is unrealistic. Doctors may charge that much, or even more, but what they actually collect is another matter. The Medicare reimbursement for a 15-minute visit is about $40, and we all know how many Medicare patients there are in Santa Barbara. Some private insurance will pay $70, but that’s becoming rare, as more insurance companies index their payments to the ever falling Medicare rates.

So let’s call the average reimbursement for a 15-minute visit about $50. That would work out to $336,000 gross per year, assuming that every visit was preauthorized and paid-a lofty assumption indeed. Sounds like a lot of money, but in reality that’s barely enough to keep a one-man medical practice afloat. Here’s why:

Rent at $2.75 for about 1,200 square feet, plus triple-net expenses = $40,000/year

Front-office person at $18/hour plus benefits = $50,000/year for scheduling/obtaining pre-authorizations/making up charts, etc.

Medical assistant or registered nurse at $18-$35/hour plus benefits = $50,000 to $80,000/year

Billing/collections, farmed out at 7 percent of gross billings = $23,500/year

Already we’re down to about $150,000 left over. But wait, there’s more:

Other costs: Computers, charts, paper supplies, utilities, medical equipment, workers comp insurance, malpractice insurance, payroll taxes, property taxes, business taxes, etc.

Just as a reference, our two-man practice has a combined overhead of more than $600,000.

And the outlook is even worse for the future, as every year seemingly brings more cuts in Medicare rates, and more shenanigans by insurance companies to avoid paying doctors what they are owed.

Add to that the fact that most doctors end up owing about $200,000 in student loans after their medical education, and you begin to see the scope of the problem. Remember, these are our best and brightest minds, who choose medicine over the multitude of other available ways to make a living-at which they would undoubtedly have succeeded. Hope this helps clarify the conundrum. - Ralph Mozingo, Santa Barbara physician

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