What Does It Really Cost to Run a Medical Practice? A Per-Hour Benchmark Approach

What Does It Really Cost to Run a Medical Practice? A Per-Hour Benchmark Approach

TL;DR: The 2024 Physician Practice Information Survey puts average practice expense at $133.61 per hour of direct patient care, against $334.87 in total Medicare Economic Index expense per hour, a 39.9 percent share. Ophthalmology runs highest at $297.19 per hour; hospital-based medicine runs lowest at $63.13. Measuring cost per hour, not as a percentage of collections, removes payer-mix distortion from the comparison.

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Why Doesn't Overhead as a Percentage of Collections Tell the Whole Story?

Most overhead conversations start with a percentage: "our overhead is 62 percent of collections." That figure is useful for a single practice tracking itself over time, but it is a poor tool for comparing one practice to another, because collections move with payer mix, fee schedules, and coding intensity, none of which reflect how efficiently the practice is actually run.

The 2024 Physician Practice Information Survey, the dataset CMS uses in Medicare Physician Fee Schedule rate setting, takes a different approach. It measures practice expense per hour of direct patient care, a physical unit that does not change when a practice's payer mix shifts. Two practices with identical staffing, supply costs, and facility footprints will report the same expense per hour even if one collects twice as much as the other. We think this is the more honest benchmark, and we walk our clients through both views for a full picture of practice overhead and operating costs.

How Much Does the Average Medical Practice Spend per Hour?

Across all specialties in the survey, the numbers break down as follows.

Practice expense, direct plus indirect, accounts for 39.9 percent of the total cost of delivering a physician hour across all specialties, based on a sample of 18,086 physicians across 831 departments. The full specialty-by-specialty breakdown lives on our practice overhead benchmarks page, which we update as CMS releases new survey data.

Which Specialties Carry the Highest and Lowest Overhead?

Overhead varies enormously by specialty, largely because of equipment intensity, staffing ratios, and whether care is delivered in an office or a facility setting.

Ophthalmology tops the list because of imaging equipment, ambulatory surgery scheduling coordination, and a heavier administrative footprint relative to visit length. Hospital-based specialties sit at the bottom because the facility, not the physician practice, absorbs occupancy and much of the staffing cost. Office-based specialties should benchmark against office-based peers, not against hospital-based medicine, or the comparison will be meaningless.

What Is the Difference Between Direct and Indirect Expense?

Direct practice expense covers clinical staff, medical supplies, and equipment tied to the patient encounter itself, the nurse rooming the patient, the supplies used during the visit, the equipment depreciation on a piece of diagnostic gear. Indirect expense covers administrative staffing, occupancy, information technology, and everything else that keeps the doors open regardless of how many patients are seen that day.

The distinction matters operationally because the two categories point to different problems. A practice running high on indirect expense usually has a staffing, occupancy, or technology cost problem: too many administrative FTEs per physician, a lease signed at the top of the market, or software licenses accumulated over years without an audit. A practice running high on direct expense usually has a clinical staffing ratio or supply chain problem: too many medical assistants per physician hour, or vendor contracts that have gone untouched since they were signed.

How Should a Practice Use These Benchmarks Internally?

Converting your own cost structure to a per-hour basis takes some work, but it is worth doing correctly. The steps we walk clients through:

This kind of benchmarking is a recurring part of our work through analytics and benchmarking engagements, where we build a practice's own per-hour cost profile and compare it against the federal data rather than against anecdote.

How Does This Relate to the CY 2027 Medicare Fee Schedule?

This same survey data feeds directly into Medicare rate setting. In the CY 2027 proposed rule, issued July 14, 2026, CMS proposed phasing out the mechanism that anchors specialty-level practice expense relative value units to practice expense per hour data collected in 2007 or earlier, replacing it with a stabilizer designed to limit year-over-year volatility. We cover the reimbursement side of that proposal, including the proposed conversion factors, in a companion piece on how the CY 2027 fee schedule changes practice economics. The two datasets, cost and reimbursement, sit on either side of the same margin equation, and a practice that only tracks one of them is only seeing half the picture.

Frequently Asked Questions

What is a normal overhead percentage for a medical practice?

There is no single normal figure, because overhead as a percentage of collections depends heavily on payer mix and coding intensity. The more stable comparison is practice expense per hour of direct patient care: $133.61 across all specialties in the 2024 Physician Practice Information Survey, with wide variation by specialty.

Why does ophthalmology have such high overhead?

Ophthalmology's indirect practice expense per hour, $200.36, is the highest of any specialty in the survey, driven by administrative staffing, imaging equipment, and ambulatory surgery coordination relative to typical visit length.

Is practice expense per hour the same as overhead percentage?

No. Overhead percentage measures cost against collections, which moves with payer mix. Practice expense per hour measures cost against a fixed physical unit, an hour of direct patient care, which does not move with payer mix. The two measures answer different questions and should not be used interchangeably.

How often is this survey data updated?

The Physician Practice Information Survey used in current Medicare rate setting reflects 2024 data collection. CMS incorporates updates into fee schedule rulemaking periodically, and we update our overhead benchmarks page whenever new figures are released.

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Want to see how your practice's cost structure compares to federal benchmarks for your specialty? Schedule a discovery call and we will build the per-hour comparison with you.