To calculate overhead in a primary care practice, start by defining the time period, separating operating expenses from clinician compensation and other excluded items, and comparing those expenses with practice revenue. The percentage is useful only when the categories remain consistent.

This guide provides a management framework, not accounting or tax advice. Work with a healthcare accountant to define the formula for your ownership structure and reporting needs.

What Practice Overhead Includes

Overhead generally includes the costs required to operate the practice before owner distributions or profit. Common categories include:

• Non-clinician and employed staff wages, payroll taxes, and benefits.
• Rent, utilities, maintenance, and office services.
• EHR, practice-management, phone, security, and other technology.
• Billing, credentialing, accounting, legal, and consulting fees.
• Medical and office supplies.
• Insurance, licenses, dues, and training.
• Marketing and patient acquisition.
• Equipment leases, depreciation, and financing costs as defined by the accountant.

Define What the Calculation Excludes

Practices handle clinician compensation, owner benefits, taxes, interest, depreciation, and one-time expenses differently. If these categories change from month to month, the ratio becomes difficult to interpret.

Create a written overhead definition and use it consistently. Keep a separate adjusted view for unusual expenses so owners can see both accounting results and operating trends.

The Basic Overhead Formula

A common management calculation is:

Overhead percentage = operating expenses divided by operating revenue, multiplied by 100.

For example, if defined operating expenses are $80,000 and operating revenue is $125,000 for the same period, the overhead percentage is 64%. That number is an illustration, not a target.

Why One Percentage Is Not Enough

A low ratio can hide understaffing, deferred maintenance, weak security, or owner work that is not recorded as a cost. A high ratio can reflect a growth investment, a temporary revenue delay, or unused appointment capacity.

Review overhead with cash, accounts receivable, schedule utilization, visit volume, staffing levels, and patient access measures.

Build a Useful Monthly Overhead Report

1. Choose cash or accrual reporting with your accountant.
2. Use a consistent chart of accounts.
3. Separate fixed, variable, and semi-variable costs.
4. Compare actual results with budget.
5. Show each category as dollars and a percentage of revenue.
6. Explain major variances.
7. Track a rolling trend rather than reacting to one month.

Where Primary Care Practices Can Cut Smart

Reduce Rework Before Reducing Staff

Repeated calls, duplicate data entry, unclear task queues, and preventable claim errors consume paid time. Fixing the workflow can lower cost without reducing patient access.

Match Staffing to Demand

Review call, check-in, rooming, message, and appointment patterns by day and hour. Cross-training and schedule changes may reduce overtime and bottlenecks.

Review Every Technology Contract

List each product, owner, purpose, users, integrations, cost, renewal date, and measured value. Remove duplicate tools and unused licenses, but do not cut security or backup controls without expert review.

Improve Schedule Utilization

Unused appointment capacity raises overhead as a percentage of revenue. Online scheduling, reminders, waitlists, and easy rescheduling can help fill appropriate openings.

Strengthen Revenue Cycle Workflows

Eligibility issues, incomplete documentation, coding errors, denials, and slow follow-up delay cash and increase labor. Track root causes rather than only the total balance.

Renegotiate Carefully

Review leases, services, supplies, insurance, merchant fees, and vendor agreements before renewal. Compare total cost and risk, not only the headline price.

Costs That Should Not Be Cut Blindly

• Cybersecurity, backups, and access controls.
• Compliance and staff training.
• Professional liability and required insurance.
• Preventive maintenance and safe supplies.
• Staff capacity needed for safe patient care.
• Patient communication that protects follow-up and access.

Frequently Asked Questions

What is a good overhead percentage for primary care?

There is no universal target. Specialty, ownership, location, staffing, clinician compensation, payer mix, and accounting definitions can change the result substantially.

Should physician compensation count as overhead?

Practices treat this differently. Define the calculation with an accountant and keep it consistent.

How often should overhead be reviewed?

Monthly review is common for management, with deeper quarterly analysis and annual budgeting.

Can online scheduling reduce overhead?

It can reduce routine phone work and improve capacity use when the workflow is well designed. The practice should measure results rather than assume savings.

Cut Waste, Not Capability

The goal of overhead management is not the lowest possible percentage. It is a financially sustainable practice that protects patient care, staff capacity, compliance, and growth.

Read about growing a primary care practice, review common primary care pain points, and explore tools that can reduce repetitive patient communication.

For another way to distinguish fixed and variable expenses, use the SBA break-even point calculator with guidance from your healthcare accountant.