What Is a Normal Overhead Percentage for a Medical Practice?

Medical practice overhead ranges significantly by specialty, but most independent practices run between 55 and 65 percent of revenue in total overhead. If your practice is above its specialty benchmark, you are likely leaking profit in one or more specific categories.

Overhead benchmarks vary by specialty because the cost structures are different. A surgical practice has lower staff-to-revenue ratios and higher facility costs. A primary care practice carries a higher administrative burden relative to revenue per visit.

What Counts as Overhead in a Medical Practice?

For benchmarking purposes, overhead includes everything except physician and advanced practice provider compensation. Rent, clinical supplies, technology systems, billing costs, malpractice insurance, administrative staff, and professional services all count. This is the MGMA standard for outpatient practice benchmarking.

What Is the Overhead Benchmark by Specialty?

Non-surgical specialties include cardiology, dermatology, neurology, OB/GYN, gastroenterology, and psychiatry.

Surgical specialties include orthopedics, general surgery, ENT, urology, and ophthalmology.

If your practice is running above the healthy range for your specialty, you are not in a revenue problem. You are in an overhead problem. Those are solved differently.

What Are the Most Common Overhead Problems in Medical Practices?

Three patterns show up consistently in the conversations I have with medical practice owners.

Staff cost creep. Support staff cost should run between 25 and 32 percent of revenue for primary care, and 22 to 28 percent for non-surgical specialties. The most common cause of overspending is not overpayment. It is misallocation. Roles built for a smaller practice that were never restructured as revenue grew. Scheduling inefficiency that shows up as overtime. Part-time positions that carry full benefit overhead. Practices running above benchmark are usually not overstaffed. They are under-optimized.

Technology and billing costs. Revenue cycle management is one of the most overlooked overhead categories in medical practices. A billing vendor charging 7 to 8 percent of collections when the market rate is 5 to 6 percent is a meaningful drag on net profit. At $2 million in collections, that gap costs $20,000 to $60,000 per year. Most practice owners signed a billing contract years ago and have not benchmarked it since. That is worth a conversation with your advisor.

Days in A/R. Benchmark for primary care is 35 to 40 days. Top performers collect in under30 days. Non-surgical specialties should be at 30 to 35 days, with best-in-class under 28.
Surgical practices ideally collect in under 25 days.
At $1.5 million in revenue, shaving 10 days off Days in A/R can release $40,000 to $60,000in cash that already exists, just sitting in the billing system. You have already earned it.
You just have not collected it yet.

What Is a Good Net Collection Rate for a Medical Practice?

Net collection rate measures the percentage of contractually allowed amounts you actually collect. It is the truest measure of revenue cycle performance, because it strips out contractual adjustments and focuses only on money you were entitled to receive.

Healthy benchmarks by specialty:

• Primary Care: 95 to 97 percent. Top performers: 98 percent or above.
• Non-Surgical Specialties: 96 to 98 percent. Top performers: 99 percent.
• Surgical Specialties: 97 to 99 percent. Top performers: 99 percent.

A collection rate below benchmark is not a billing problem. It is a revenue problem that looks like a billing problem. At $2 million in revenue, a two-point improvement in net collection rate is $40,000. A three-point improvement is $60,000. Without seeing a single additional patient.

What Happens When Overhead and Collection Rate Problems Exist at the Same Time?

One number below benchmark is a flag. Two or three is a pattern.

I was talking with a primary care practice owner recently whose revenue had grown steadily but profit had not followed. When we pulled the numbers, overhead was running at 64 percent, Days in A/R were sitting at 47 days, and net collection rate had slipped to 93percent.

None of those numbers were dramatic on their own. Together, they accounted for over $180,000 in recoverable profit that was already inside the practice. It was not a growth problem. It was a systems problem.

The overhead was addressed by renegotiating vendor contracts and restructuring two part-time roles into one full-time position. The collection rate improved by switching billing vendors and implementing a denial management workflow. Days in A/R dropped after the front desk began collecting copays and outstanding balances at check-in rather than sending statements.

None of it required new patients. All of it required knowing the numbers.

How Do You Start Benchmarking Your Medical Practice Overhead?

The first step is knowing your numbers. Most practice owners have a general sense of how the practice is performing but have never benchmarked their specific figures against specialty data. That gap between feeling and knowing is where money lives.

Want to see how your practice compares? Take our Medical Practice KPI Benchmark assessment here https://redbikeadvisors.com/resources/medical-practice-assessment