Dear Doctors, What Are Your Private Practice Pain Points?

The initial consultation is Step One in my What Matters Most to You process. During our introductory meeting, my goal is to discover insights into the financial well-being of your private practice business. We are hearing what your wishlist is; we are identifying your pain points and outlining your business goals.

Common Pain Points in Private Practice

If you’ve read this far, you likely are a physician who has made the ambitious decision to open your own private practice in your community.?

Perhaps this was before COVID and you faced insurmountable odds to stay afloat financially during the pandemic. Perhaps COVID-related bureaucratic changes at your old place of employment as a physician are what inspired you to branch out on your own.?

Regardless, you are here, and you want to know how medical bookkeeping services can improve your business model.?

Business & Malpractice Insurance?

Unlike non-medical small businesses, private practice owners who are physicians have to pay for both business insurance and malpractice insurance.?

Business insurance tends to be the cheaper of these two categories. Business owners' policies bundle general liability and property insurance at a median rate of $795 annually in premiums. For workers' compensation insurance for employees at the medical office, private medical practices often pay less than $985 annually in premiums. At less than $2,000 per year, your total business insurance expenses typically pale in comparison to your professional liability insurance policy as a physician.

But did you know that your own malpractice insurance costs are also tax-deductible for your private practice?

For employed doctors, malpractice insurance is a job-related expense and can be included on the itemized expenses list on Schedule A of Form 1040. However, for independent contractors and private practice owners, your malpractice insurance including tail coverage is a business expense.?

Malpractice insurance costs range widely based on location and specialty. While only seven states require healthcare providers by law to obtain malpractice insurance, most physicians opt to carry insurance even if this is not mandatory.? As an example of a state where malpractice insurance is required, Massachusetts has an average rate of $13,000 annually for claims-made insurance policies for family practice. For doctors who are switching to a new insurance carrier and need to buy tail coverage, the approximate tail rate in Massachusetts is $26,000 annually for family practice.

An experienced medical bookkeeper is familiar with all of these aspects of malpractice insurance and how to account for these as business expenses.?

As a simplified example, imagine if you were a family medicine doctor in Massachusetts and a private practice owner. Last year, you changed malpractice insurance carriers and had to pay $26,000 in insurance premiums for 2021. Originally, you had not included your personal malpractice insurance as a business expense, and now you have a colossal tax bill to pay in 2022. Working with an experienced accountant will allow you to drastically reduce that bill by deducting another $26,000 in business expenses.

Patient Acquisition Costs

When patients are satisfied with the quality of care at your private practice, they will tend to both continue seeking services at your medical office as well as share their experiences with others. Word of mouth marketing is a significant influence on other patients’ decisions of where to seek care with 93% of general consumers reporting that they trusted reviews from family and friends over any type of advertising. With their personal health at stake, people are even more invested in learning about the level of quality provided at your private practice.

But what happens when patients are unhappy? More than 90% of patients simply leave when they are dissatisfied with their experiences at a medical office. They likely will not provide you with feedback, but they certainly will share their thoughts online and with their friends and families. Your reputation and your bottom line can suffer in such instances.?

Patient acquisition cost (PAC) can be a sizable expense within your private practice business. An average-sized medical office might spend $40,000 per year on marketing resulting in 400 new patients. These numbers indicate a patient acquisition cost of $100 per patient. If you charge $50 per visit, then you will need to retain your new patients for at least three visits to begin turning a profit.?

When patients are unhappy, you will have both poor retention rates and an uphill, more expensive battle in marketing with negative reviews on your medical office. Your cost to acquire a new patient will increase, and your new patients will not stick around long enough to turn a profit.?

Are you unsure where you stand with your current numbers? An experienced bookkeeper is in tune with what ratios make a medical office successful. A large marketing expense and low revenue indicate a problem that you might not have realized previously. Your accountant will alert you to any red flags as a pain point to begin addressing immediately to increase your net revenue.

Employee Turnover?

A high employee turnover rate can sully your relationships with patients, cause inconsistencies in care, and ultimately affect your bottom line.?

In primary care, the number of nurse practitioners (NPs) employed in private practice is rapidly growing in comparison to physician employment. In states where NPs have more autonomy, these healthcare professionals are filling in gaps left by physician shortages. However, as an important point of note, official studies have found that the national turnover rate for NPs and physician assistants (PAs) in the United States is 12.6% and more than twice the turnover rate of doctors at only 6%.

Over the past decade, the turnover rate in the healthcare industry has increased by 5% across all jobs in the medical field and now averages 20.6%. This concern is further compounded by the fact that community primary care practices were already struggling with an astounding staff turnover rate of 53% in some regions.

These disruptions caused by a high turnover rate are costly as private practices must allocate additional funds to finding and training a replacement for each staff departure. Within the healthcare field, high employee turnover of medical billing and front office staff and lack of proper training can result in costly mistakes, ranging from inaccurate medical coding that can result in a lack of reimbursement to HIPAA violations that can result in fines for your private practice.

Like many other private practice owners, you probably are wondering how you can reduce staff turnover at your medical office. Healthcare workers across the industry are leaving, and highly-skilled providers and medical billers are in high demand. How can you attract and retain employees who will generate revenue for your business??

With job dissatisfaction being one of the top reasons why many healthcare workers are leaving the field, private practice owners need to invest in incentives to encourage employees to stay.?

One Workplace Learning Report by LinkedIn echoed much of similar research in finding that 94% of employees would remain at their current place of work longer if the company contributed to their career development. Many staff retention consultancy firms for private practices boast numbers as high as a 75% reduction in staff attrition when supporting employee participation in continuing education opportunities.?

With a multispeciality team of accounting and bookkeeping specialists, you can work on prevention rather than intervention by investing in employee education.?

Providing continuing education opportunities to employees tends to increase retention rates. The education cost per long-term employee is significantly less than the costs involved in head-hunting and training a series of replacement staff members. As an even bigger bonus, education assistance for your employees is tax-deductible for you and often tax-free for your employees for up to $5,250 per year. In stark contrast, any HIPAA violation fines incurred due to the actions of poorly-trained employees at your private practice are not tax-deductible.

Medical Office Buildings

While COVID has prompted more private practices to offer virtual visits only, the majority of physician specialties require in-person visits with patients at one point or another, and in-person visits require an office building that can meet these needs.

As is true for most businesses, the cost of leasing or owning an office property makes up a substantial portion of overhead costs. Now, what does this mean for your private practice? Your medical office building is a significant part of your overhead, and you need to make that cost work for you as a tax shield to reduce your taxes owed.?

This is where a skilled medical bookkeeper comes in handy. Deducting lease or rental costs is often a confusing process for someone not familiar with IRS regulations. First, a business must determine whether payments are for rent or purchase of the property as the tax rules differ. Second, to take a rental deduction, the rent must be reasonable--which is defined as not significantly higher than market value. Third, if a business pays rent in advance, it can only deduct the amount applicable for the use of the facility during the tax year. Fourth, a business can often deduct lease cancellation fees as an expense.??

Especially considering the recent drastic fluctuations in US medical office building rental prices, having a specialist in medical bookkeeping on your side to help you plan for the future of your medical office is an excellent way to save money in the long run.?

Your medical bookkeeping consulting team can help you determine whether it is fiscally wise to purchase or lease an office building, whether the rental rate can be deducted if it is reasonable, how much of the rental costs can be deducted if you paid rent in advance, and whether you can deduct lease cancellation fees if you decide to move to another building.?

Outlining Your Business Goals

Currently, the average private practice with a single medical office location generates between $120,000 to $780,000 in gross revenue annually but only 12% to 20% of that in profit depending on specialty and location. This means that a medical office might be generating $700,000 annually but only taking home $84,000.

When I listen to your wishlist, I list out your business goals. Your goals may range from increasing profits to reducing employee turnover to improving customer service. As a medical bookkeeper, I create a customized approach for your medical office to make the most out of each financial goal.?

Your objective to reduce employee turnover just became tax-deductible when you chose to increase retention through reimbursing continuing education costs. You now have more skilled and engaged employees and more cash freed up by a lower tax bill due next year.

Year One Goals

One business goal that I always recommend for Year One is to increase the past year’s net revenue by reducing your tax bill.?

By the time we meet, you likely will have paid hundreds of thousands in overhead to keep your medical office running. But have you deducted everything you could as a business expense??

I find that many clients are hesitant to maximize business tax deductions for fear of being audited. But that’s why I’m here. Every legitimate expense can and should be applied. From your mileage to your malpractice insurance, nearly every cent that has come out of your pocket and gone toward your costs in generating revenue as a private practice owner should be listed on your expense sheet.?

Imagine your sigh of relief as your huge tax bill just was reduced by thousands.?

Moving forward, you can work with your medical bookkeeper to focus on financial planning to continue to generate more gross revenue while working to reduce your tax bill each year.?

Year Five Goals

For your Year Five goals, now that you’re squared away, we can focus on intervention rather than prevention.?

With your pain points identified, we can determine how best to meet these.?

Are you a private practice psychologist who wants to transition to an online-only clinic within five years due to the increasing cost of rent in your city??

A medical bookkeeper can help you plan financially by forecasting your net revenue and expected tax liability in the absence of your past rent expense while writing off your lease termination fee.

Are you a private practice dermatologist whose revenue is growing in leaps and bounds through aesthetic services and skincare products with a five-year financial goal of grossing $800,000 in revenue??

A bookkeeping team can help you stay on top of your tax burden by outlining a spending plan and setting up your estimated quarterly taxes. This specialist would also keep track of your sales tax numbers which are due monthly in most states if you have a high volume of sales. Staying organized and meeting key deadlines are crucial as you can avoid IRS penalties on estimated taxes and even save money through sales tax discounts if you pay your sales tax bill early or on time in 26 states.

So What’s Next?

You’ve already invested a great deal of time and money into your business, and now it’s time to make those investments work for you.?

The money you have paid into your private practice can be more accurately deducted through a knowledgeable accountant to free up additional funds after taxes.???

The time you have spent within your private practice can provide a bookkeeping specialist with valuable information on how best to guide you toward a profitable future.

Are you ready to meet your goals? With a medical bookkeeper on your team, you are well on your way. For a free consultation click here.