Imagine for a moment you’re a doctor, getting ready to finish up your residency and head out into the big world of medical practice. 

You want to do OB/GYN, in Miami, FL and decide maybe it’s a good idea to see what starting your own practice will cost. 

Are you ready?

  • 2,000-square foot office in Miami, $20 per square foot, $40,000 per year
  • Medical malpractice insurance, $275,000 per year
  • Medical Office Manager, with some experience, $75,000 per year ($80,750 when you include mandatory matching for social security and medicare taxes)
  • Registered Nurse, with some experience, $85,000 per year ($91,500 with matching social security and medicare taxes)
  • LPN or CMA, with some experience, $45,000 per year ($48,500 with matching social security and medicare taxes)
  • FT Receptionist, with some experience, $30,000 per year ($32,295 with matching social security and medicare taxes)
  • PT Receptionist, with some experience, $20,000 per year ($21,530 with matching social security and medicare taxes)
  • Billing, Collection & Transcription, with some experience, $40,000 per year ($43,060 with matching social security and medicare taxes)
  • Health insurance for staff & yourself, with you paying 80% of cost for staff, $35,000 per year (if you’re lucky!)
  • 401(k) contributions, you guarantee 3% a year, $8,850 per year
  • CME reimbursement for medical staff, $1000 per year
  • CME for maintaining medical license for physician, $2500 per year
  • Medical Supplies, $12,000 per year
  • Capital Equipment (not start-up equipment, but annual capital equipment), $25,000 per year
  • Legal fees, $1200 per year
  • Accounting fees and tax prep, $2400 per year
  • Utilities and office maintenance, $15,000 per year
  • Non-medical office supplies, $6,000 per year
  • Professional dues, $1200 per year
  • Business insurance and licences, $3600 per year
  • Software licensing, $2400 per year
  • Advertising, $12,000 per year
  • Miscellaneous expenses, probably around $6,000 per year

Setting aside the cost of all the equipment you’ll need to start your practice, your annual expenses, before you can even think of paying yourself, must exceed $766,785 each year, with the overall average increase each year of no less than 5%.

If you have a good year your first year in private practice, you can expect to deliver 200 babies, with 1400 appointments for care, delivery and post-delivery follow-up, and see additional non-pregnancy related patients in approximately 1200 office visits, of which 200 will be billed as new patient visits, 200 as prenatal first visits, and 1000 as routine office visits with or without additional procedure codes as part of the billing.

Not bad for a first year doc going into private practice!

So, based on reimbursements by insurance companies, medicaid and private paying patients, how much can you expect to pay yourself?

Let’s do math!

200 pregnancies, of which you hope to take 20% as medicaid patients (40 patients) and roughly 10% will be self-pay (20 patients).

Of the 160 with private insurance, 75% (120 patients) will statistically be “low-risk” and you’ll be reimbursed $3,244 per patient; 25% (40 patients) will be statistically “high risk” and you’ll be reimbursed $5,153 per patient.  All totaled, these pregnancies will provide a potential $389,280 from your low-risk patients and $206,120 for taking care of your high-risk patients.  Combined this is $595,400.  But don’t get too excited yet, the average medical practice can only collect 62% of their billings to insurance companies, so it’s likely you’ll only collect $369,148 for your services.

The 20% of patients covered by medicaid won’t be a collection problem as long as you have patience.  Statistically your medicaid patients will be a 60/40 split for low-risk and high-risk and you’ll receive $1,500 for each low-risk pregnancy and $2,000 for each high-risk pregnancy.  With 40 patients covered by medicaid, you’ll be reimbursed $36,000 for the 24 low-risk patients you take care of, and $32,000 for the 16 high-risk patients.  Combined you’ll receive $68,000 for their care.

Of the 20 patients you see whom will pay themself, for whatever reason, you’ll likely bill each $4,000 and collect 60% on average, or $48,000 for their care.

In total, the 200 babies you delivered will generate $485,148 of revenue for your practice; an average of $2,425.74 per pregnancy.

Ooops, wait a minute!

Your practice costs $766,785 a year before you even can pay yourself.  You’re still in the hole for $281,637 and haven’t taken any salary yourself!

We haven’t yet considered your other patients and their office visits, have we?  Those 300 other patients you hope to provide medical care to that is not related to pregnancy.

On average, those patients will bring your practice an additional $300,000 in revenue for everything from reimbursement for new patients, annual exams, general complaints and other services you can bill for – so it’s possible you can cover your expenses, but it’s impossible to pay yourself after you’ve met your overhead obligations.

You still can’t afford to go into private practice, because you only have $18,363 left to pay yourself after paying all your expenses!

You go into wishful thinking mode – maybe you can find a top-notch billing person and collect above the national average?

Even in the most ideal situation, if you managed to hire a top-notch collection superstar, who managed to collect 70% of your billings from insurance, well above the average for private practice physicians, you’d see $832,780 in revenue collected, leaving just $69,995 left to pay your salary, matching social security and medicare, and mandatory 3% into your 401(k) account.

A paltry $69,995 left, with a potential to pay yourself $63,605 since your 401(k) needs $1800 and matching social security and medicare is another $4600. 

After paying your income taxes, you’ll take home $52,000, or $4333 each month.  Once you pay your student loan payment of $1680 each month, you’ll have $2653 left to try to live on. 

Good luck finding the superstar to collect well above the national average and then better luck figuring out how to live on just $2,653 each month in Miami, FL!

You managed to pay your malpractice carrier 4.3 times more than you paid yourself. 

Welcome to the real world Doc!