Free Tool — Healthcare Practice Finance
Is your practice spending too much — or do you just not know?
Most practice owners don't know their overhead ratio until it shows up as a cash shortfall. Enter your specialty and expense buckets — get your overhead ratio vs. your specialty benchmark and a cash reserve adequacy score. Takes two minutes.
Practice overhead, answered
What the ratio actually measures, why two practices with identical economics can benchmark differently, and what to do about a number that looks wrong.
What is a healthy overhead percentage for a medical or dental practice?
It varies enough by specialty that a single target is misleading. Procedure-heavy specialties carrying significant equipment, lab, and supply costs typically run materially higher overhead than consultation-driven practices with lower fixed cost. The more useful comparison is a practice against its own trend and against peers in the same specialty and market — a ratio drifting up three quarters in a row says more than a ratio sitting above a published average.
What actually counts as overhead?
Generally every operating cost of running the practice other than the owner's own compensation and profit — staff wages and benefits, occupancy, supplies, equipment, lab fees, insurance, marketing, and administrative cost. The definition is where most benchmarking breaks down: if one practice includes owner salary and another excludes it, the two ratios are not comparable no matter how carefully they were calculated.
Should owner compensation be included in overhead?
Conventionally it is excluded, so that overhead measures the cost of operating the practice and what remains is what the practice produces for its owner. The important thing is consistency: pick a treatment, apply it every period, and know which convention any benchmark you are comparing against used. An S-corp practice paying the owner a W-2 salary will look very different from a sole proprietorship taking draws unless this is normalized first.
Why is my overhead higher than the benchmark?
The common drivers are staffing ratio relative to provider capacity, occupancy cost locked in at a higher square footage or rate than current volume supports, payer mix that depresses collections without reducing the cost of delivering care, and supply or lab costs that were never renegotiated as volume grew. High overhead is frequently a revenue problem wearing an expense costume — the same cost base against lower collections.
How often should a practice benchmark overhead?
Quarterly is generally frequent enough to catch a trend and infrequent enough to avoid reacting to noise. Monthly figures in a practice with lumpy collections or periodic supply orders will swing for reasons that have nothing to do with cost control. What matters is that the chart of accounts holds categories steady between periods, because a mid-year reclassification will show up as a change in overhead that never actually happened.