What Are the Costs of Owning an Internal Medicine Practice?
Owning an internal medicine practice involves more than the initial cost of starting or purchasing the business. Physicians should also understand the ongoing expenses required to operate the practice after becoming an owner.
These expenses can vary depending on the size of the practice, location, staffing, patient volume, services offered, and other factors.
For physicians considering internal medicine practice financing, understanding ongoing operating costs can help with financial planning and determining how much working capital may be needed.
Here are eight common costs associated with owning an internal medicine practice.
1. Employee Payroll and Benefits
Payroll can be one of the largest ongoing expenses for an internal medicine practice.
Depending on the practice, employees may include:
- Medical assistants
- Nurses
- Front-office staff
- Billing personnel
- Office managers
- Other administrative employees
The practice may also have expenses related to employee benefits, payroll taxes, training, and other employment costs.
2. Office Rent or Real Estate Expenses
Physicians who lease their medical office will generally have ongoing rent and occupancy expenses.
Other facility-related costs may include:
- Utilities
- Property maintenance
- Repairs
- Cleaning
- Property taxes, when applicable
- Insurance
Physicians who own their medical office may have mortgage payments and other property-related expenses instead of rent.
3. Medical Supplies
Internal medicine practices require a variety of medical and office supplies to operate.
Depending on the services provided, expenses may include:
- Exam gloves
- Medical disposables
- Diagnostic supplies
- Office supplies
- Patient care materials
Supply costs can increase as patient volume increases.
4. Medical Equipment and Maintenance
Medical practices may need equipment for examinations, diagnostics, monitoring, and other patient-care activities.
Equipment-related expenses can include:
- New equipment purchases
- Equipment maintenance
- Repairs
- Replacement costs
- Equipment upgrades
Planning for future equipment needs can help prevent unexpected capital expenditures from disrupting practice cash flow.
5. Technology and Practice Management Systems
Modern medical practices rely on technology for many daily operations.
Potential technology expenses include:
- Electronic health record systems
- Practice management software
- Billing systems
- Computer equipment
- Cybersecurity
- Internet and communications
- Technology support
These expenses can include both recurring subscriptions and periodic equipment purchases.
6. Insurance and Professional Expenses
Physicians may have several insurance and professional expenses associated with operating a practice.
These can include:
- Malpractice insurance
- General liability insurance
- Business insurance
- Accounting services
- Legal services
- Professional licensing
The exact costs will depend on the practice and the services required.
7. Marketing and Patient Acquisition
Established practices may continue investing in marketing to attract new patients and maintain growth.
Marketing expenses may include:
- Website management
- Search engine optimization
- Online advertising
- Patient communications
- Community marketing
The appropriate marketing budget can vary significantly depending on the practice’s goals and competitive environment.
8. Loan Payments and Other Debt Obligations
Physicians who use financing to purchase or expand an internal medicine practice will need to account for loan payments in their ongoing budget.
Monthly debt obligations may include financing for:
- Practice acquisition
- Commercial real estate
- Equipment
- Practice expansion
- Working capital
Understanding the expected monthly payment can help the physician evaluate how the financing fits into the practice’s projected cash flow.
How Much Working Capital Does an Internal Medicine Practice Need?
The amount of working capital a practice needs can vary depending on its size, expenses, revenue cycle, staffing, and other factors.
Working capital can help cover operating expenses while the practice waits for payments from patients, insurance companies, and other sources.
Physicians should consider working capital requirements when preparing an acquisition or expansion budget.
Why Is It Important to Understand Practice Operating Costs?
Understanding ongoing expenses can help physicians create more realistic financial projections.
Before purchasing or starting an internal medicine practice, physicians should consider both revenue and expenses.
A practice with strong revenue can still experience cash-flow challenges if operating costs and debt obligations are too high.
Reviewing historical financial statements and creating realistic projections can help physicians better understand the potential financial requirements of ownership.
How Can Financing Help With Practice Expenses?
Depending on the financing program and transaction, financing may potentially be used for certain eligible business expenses.
This may include funding for:
- Practice acquisition
- Equipment
- Commercial real estate
- Expansion
- Working capital
The specific uses, terms, and requirements depend on the financing program and lender.
Final Thought
Owning an internal medicine practice involves a variety of ongoing expenses, including payroll, office costs, medical supplies, equipment, technology, insurance, marketing, and debt payments.
Physicians considering practice ownership should evaluate these expenses alongside projected revenue and cash flow.
Understanding the ongoing cost of operating a practice can help physicians prepare a realistic budget, determine potential working capital needs, and make more informed decisions about practice ownership and financing.
