As important as overhead expenses are in the economics of PCP practice, measuring overhead costs as a percentage of revenue can be profoundly unhelpful.

After attaining a certain measure of success and a spreading reputation, an illustrator can vastly increase his prices and still sell his entire output, and do so without incurring added costs for pencils, paint, paper, other studio supplies or studio space. Revenue up; no change in overhead costs; overhead costs as a percentage of revenue down.

In other words, increasing prices can result in driving down overhead as a percentage of revenue.

Another route to a similar place might be for an entrepreneur to shift to specific activities that generate greater revenue but that need lower cost inputs. Dr Bujold, a PCP from Granite Falls, NC, once reported that his overhead as a percentage of revenue was lower when he devoted a larger portion of his practice to hospital visits rather than office visits. He specifically noted that his hospital calls entailed only a 5% overhead.

Reports of low overhead as a percentage of revenue from direct primary care clinics might result from a situation similar to what Bujold reports. D-PCPs typically stress the virtue of simply spending more time talking to their patients. Financially able patients are apparently willing to pay for the extra time, enhancing revenue; but talking twice as long does not require a proportional increase in, say, staff payroll or medical supplies.

A physical exam followed by a ten minute talk uses the same number of examination gloves as a physical exam followed by a thirty-minute talk. Similarly, the DPC selling point of same-day appointments (slack scheduling) can warrant provider revenue enhancements without requiring a proportional increase in floor space. Or, a provider offering concierge-availablity at premium price can increase revenue per patient, reduce panel size, and so face smaller malpractice risk as a share of revenue.

A cardinal point of its advocates is that DPC eliminates a significant measure of insurance related administrative tasks. It would be useful to know — in absolute terms, i.e., in dollars rather than as percentages of revenue — the costs that are actually subject to elimination (see., e.g., Jiwani et al., “Billing and insurance-related administrative costs in United States health care.“) But, in so far as the service mix in typical DPC offices differs from that in typical insurance based offices, comparing overhead only as an overall percentage of revenue in direct versus insurance practices will not yield a clean measurement of the savings that can be directly attributed to eschewing insurance.

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