Owners of growing medical practices often ask if they can afford to hire a new provider or bring their medical billing in-house. We have developed tools to determine the cost of adding medical practice employees. Clients are often shocked at the calculations.
Our tools examine one-time upfront costs such as recruiting, credentialing and legal fees, additional fixtures and equipment costs, and direct costs (e.g., salaries, benefits, and employer-paid taxes). In addition, we calculate the cost of paying a new employee for time not worked, including vacation, sick leave, holidays and “down time.” We amortize one-time upfront expenses over five years (assuming money was borrowed to fund the expense). When hiring new providers, other indirect costs could be incurred, such as the hiring of a new medical assistant or receptionist.
When evaluating whether to bring billing in-house, we look at the new employee’s cost as a percentage of total charges. The point at which a new billing employee’s total cost is equal to or lower than the percentage of collections charged by a third-party biller would justify bringing medical billing in-house. However, this calculation does not consider the soft “costs” of additional management responsibilities this new employee would generate.
The calculation for a new provider looks at the number of patients the provider would have to see to cover his or her costs, including medicines, supplies, vaccines and lab costs. We use medical industry benchmarks to determine average patient encounter collections for a given specialty and also allow for time needed to build the new provider’s patient panel.
The net result of adding up all direct and indirect costs often comes close to doubling the cost originally estimated by a practice owner – especially for new providers. The key consideration, however, is determining the patient volume needed for that new provider to cover his or her costs and to start generating additional profits for the practice. If the practice is in a growing market and is close to capacity with its existing providers, then it is time to start planning for a new hire.
The University of Georgia Small Business Development Center Medical Practice Management Program (MP2) offers no-cost consulting to medical practices in Georgia. Contact Matt Lastinger at 706 542-8322 [email protected] for additional information.
