Identifying the cost of providing services

Table of contents

Supplementary material

Last revised: 24 Oct 2019

Identify, assess, and control the costs associated with delivering quality health services

So that your fees remain fair and provide you with an appropriate income, regularly dedicate time to identify, assess, and control the costs associated with delivering quality health services.

In most practices, the two largest costs are wages for health professionals and administrative staff (which includes tax and superannuation) and occupancy expenses (rent or mortgage and associated costs).

Other costs include:

administration costs, such as utilities, insurance, cleaning, cars, postage
infrastructure and technology costs, such as hardware, software, website hosting, online booking systems
medical consumables
other consumables, such as stationery and brochures, printer cartridges, tissues, kitchen items, petrol
fees for accounting, legal and other professional services
professional costs, such as registration and accreditation, indemnity insurance, and membership fees for professional bodies. Although some of these could be considered personal costs, some practices agree to pay some or all of these costs (eg membership to a professional organisation) because the practice also benefits from their membership.

Fixed and non-fixed costs

Many of the costs in medical practices are fixed and do not vary much or at all, regardless of how many patients you see.

Examples of fixed costs include rent, some insurance premiums, wages for permanent staff, cleaning services, and website hosting.

Some fixed costs may increase at regular intervals (eg your rent might increase after three years).

Generally speaking, you can do little to control your fixed costs, although you can aim to reduce some of them by, for example, negotiating with the premises’ owner, and “shopping around” for cheaper providers.

Examples of non-fixed costs include utilities and consumables, which can vary depending on how many patients you see and what their needs are, how many hours your practice is open, and purchase practices (eg buying printed stationery in bulk to reduce unit costs). You can control some of these costs by asking staff to turn off equipment and lights when they’re not in use, compare costs of different suppliers before ordering, and to not waste consumables.

Breakeven point

Your breakeven point is the point at which your total revenue equals your total expenses.

Remember that revenue is what you use to pay costs, therefore generating $10 does not equal $10 gained or $10 of profit. In fact, if your costs are $10, you have made no profit at all. However, if you reduce your costs to $7, you generate $3 of profit.

By identifying your practice’s breakeven point, you develop a better understanding of your practice’s financial viability.

Tip

Don’t be afraid to ask ‘Is that the best you can do?’

Wherever possible, negotiate with suppliers and ask them to submit quotes and tenders whether they are providing goods (such as premises, electricity, telephone, office supplies, and medical supplies) or charging fees for professional services, such as banks, insurance companies, and accountants.

Wherever possible, “shop around” to find the most cost-effective option that doesn’t compromise your practice’s ability to deliver quality services.
Remember: every cost you reduce is a saving that you can invest into your practice or take as profit.

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