Q1 2019 Newsletter


The success of businesses, including medical practices, is measured in profit and loss.

Traditionally, physicians who own their practice receive revenue, pay expenses, and take home the balance. The problem with this method is that the practice cannot be viewed as a business distinct from the physician-owners. The physician should wear two hats – one as a business owner and one as an employee of the practice. The physician-owner(s) should assign a “physician cost” line item. That cost should reflect the compensation (salaries/wages and payroll taxes) that would be required to replace the physician-owner(s) with employed physician(s) of comparable skills and experience.

These physician costs are added to the overhead costs, and the sum is compared to the practice income. Any surplus after the cost total is subtracted from revenue is considered profit, and any deficit is considered loss. Of course, these calculations will not necessarily affect the dollars the physician-owners take from the practice. These calculations are for performance measurement; they are not the basis for physician compensation.

These revised costs and profit and loss calculations are used to evaluate the performance (profit and loss) of the practice as well as to determine the cost-per-RVU calculations.