I was out bush-wacking the other day and scratched myself on a rusty piece of barbed wire. I didn’t remember when the last time I had a tetanus shot was so I decided to go to the doctor. This is the cost of my shot, tetanus_bill $223.00. Suffice it to say I was mildly shocked when I received the bill. Ever since my wife contracted cancer, the insurance company dropped her and she died without insurance, I haven’t been a fan of either the medical profession or insurance companies. So this article might be a little biased. That being said I thought I would take a look at what it costs to become a doctor, set up a practice and payoff both the cost of schooling and become profitable in private practice.
According to bestmedicaldegrees.com the cost of education ($187,000) and lost potential income ($229,216) while in medical school, your average doctor is in the hole $416,216 by the time s/he finishes medical school. That is a sizable amount of debt. Yet, when you look at the previous bill it looks like my doctor is receiving $137.00 for what was 8-12 minutes of face time. If all my doctor had to do in a day was have face time with his patients then he would be making $685 per hour or $1,424,800 per year if he restricted himself to a forty hour work week. But, doctors have other duties than face time with patients so that million four is a little high.
According to a study done by the New England Journal of Medicine, of a Philadelphia family practice, these additional duties include: telephone calls, prescription refills, email messages, as well as lab, imaging and consultation reports. Still, with all of these other duties physicians were able to visit 18.1 patients per day. After operating costs and paying support staff MedPage Today reports that better performing practices generate $242,142 of revenue per physician. If that was the total cost of starting up a private practice a physician could retire his debt and make up for the potential wages he lost by going to medical school in 1.71 years. But there is the cost of setting up the practice itself, which according to Medical Economics can be as much as $100,000. So we need to add that onto the $416,216 making the total cost of setting up a private medical practice of $516,216.
Taking the cost into consideration, at $242,142 of revenue per year your average doctor can become profitable in 2.1 years. So how does that compare to your average start up. According to Business Sales Center, using the cash flow method the average value of a company is four times annual sales. That would value the average private medical practice at $968,568. So that $516,216 cost of setting up a medical practice has brought that fresh graduate a 53% return on his investment. That’s pretty good. But that type of return has a cost to the patient. In my case $223 for a tetanus shot.
When we look at the average value of a business, using the cash flow method, at four times annual sales, the assumption is that a potential buyer can retire his investment in four years. Looking at the cost of a medical practice in this manner, assuming that a recent graduate could recoup his investment ($516,216) in four years the annual revenue s/he would need to generate would be $129,054. Now, if we divide that number by 4,706, which is the number of patients a doctor would see in a year if he saw 18.1 patients per day for each of the 260 work days in the year, then the cost of an office visit should be $27.42. That’s a long way away from the $223 I spent for a tetanus shot. I wonder what health insurance premiums would be if office visits cost $27.42 versus $223?
This article, aside from being a pet peeve of mine, hopefully encourages us to eat healthy and exercise regularly so that we can minimize our interaction with the medical industrial complex and keep more of our hard earned cash to ourselves.
Jim Sea holds a Masters in Divinity, a Masters in Social Work, has been a registered investment advisor and a residential real estate broker.