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I was having a conversation with employed/academic colleagues who stated their compensation functions like a "private practice model." They explained how their income is calculated as "collections minus expenses" and thus they are incentivized to work hard and rewarded for their effort. That's great - but in my opinion that is not a private practice model.
My observation is that unless you are the practice owner, you don't really know what the collections and expenses are (or what they should be) and you have zero control and influence over them. For example, in academic/employed settings, watch out for:
COLLECTIONS not being accurate because: You are paid on RVUs, which is not actually dollars collected and can be easily manipulated. Your RVU rates don't go up over time despite insurance contracts often increasing with renegotiations. You never see bonuses or incentive payments from insurance companies for good work (these happen). You likely receive no ancillary income from: labs, radiology, real estate, surgery centers, physical therapy, mid-level providers. Thus, your COLLECTIONS (or at least the part that you see) are probably much lower than they should be.
EXPENSES are almost certainly not accurate because: Fixed expenses are often a "black box" that accounts for billing, staffing, rent, utilities that you never really see. It's easy to throw in various "fees" and "taxes" on behalf of the corporation that go towards paying for research, training, admin, EMR upgrades, etc. Often for simplicity expenses are calculated as percentage, which is very manipulative because rent and utilities don't increase when you have a busy month (my "overhead rate" varies anywhere from 28-60% depending on the month, hovering around 33% pre-COVID). Thus, EXPENSES are typically much higher than they would be in private practice.
Most importantly, I talk about the "15 is 30" concept when I give lectures on this topic to residents and fellows. This is how 15% of extra work translates to 30% of extra income when your overhead is fixed. Example in real numbers: If my average monthly collections is $60k, and my average monthly overhead expense is $30k, then I take home $30k each month (50% overhead). If I start getting more popular and my practice is 15% busier, then I would start collecting closer to $69k monthly (60 x 1.15) but my overhead remains constant (because a 15% increase in patients does not require more staffing, utilities, etc). So now I take home $39k each month... which is 30% more income for only 15% more effort. In my opinion, that is the *MAGIC* of being a business owner.
I wanted to share this, especially for residents/fellows who rarely get this type of education. In my experience, this concept is never highlighted.
What do you think? Is your experience the same? Are many employed physicians sold on this "private practice model" line?
My observation is that unless you are the practice owner, you don't really know what the collections and expenses are (or what they should be) and you have zero control and influence over them. For example, in academic/employed settings, watch out for:
COLLECTIONS not being accurate because: You are paid on RVUs, which is not actually dollars collected and can be easily manipulated. Your RVU rates don't go up over time despite insurance contracts often increasing with renegotiations. You never see bonuses or incentive payments from insurance companies for good work (these happen). You likely receive no ancillary income from: labs, radiology, real estate, surgery centers, physical therapy, mid-level providers. Thus, your COLLECTIONS (or at least the part that you see) are probably much lower than they should be.
EXPENSES are almost certainly not accurate because: Fixed expenses are often a "black box" that accounts for billing, staffing, rent, utilities that you never really see. It's easy to throw in various "fees" and "taxes" on behalf of the corporation that go towards paying for research, training, admin, EMR upgrades, etc. Often for simplicity expenses are calculated as percentage, which is very manipulative because rent and utilities don't increase when you have a busy month (my "overhead rate" varies anywhere from 28-60% depending on the month, hovering around 33% pre-COVID). Thus, EXPENSES are typically much higher than they would be in private practice.
Most importantly, I talk about the "15 is 30" concept when I give lectures on this topic to residents and fellows. This is how 15% of extra work translates to 30% of extra income when your overhead is fixed. Example in real numbers: If my average monthly collections is $60k, and my average monthly overhead expense is $30k, then I take home $30k each month (50% overhead). If I start getting more popular and my practice is 15% busier, then I would start collecting closer to $69k monthly (60 x 1.15) but my overhead remains constant (because a 15% increase in patients does not require more staffing, utilities, etc). So now I take home $39k each month... which is 30% more income for only 15% more effort. In my opinion, that is the *MAGIC* of being a business owner.
I wanted to share this, especially for residents/fellows who rarely get this type of education. In my experience, this concept is never highlighted.
What do you think? Is your experience the same? Are many employed physicians sold on this "private practice model" line?
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