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Can someone explain how overhead works.

How does it work for community vs hospital practice?

From what i read, those working in hospitals do not have any overhead, but what about the ophtalmologist, radiologist working full time or patially in a hospital?

I'm in Quebec, if that changes anything

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In Canada, when a patient sees a doctor for most things, the provincial government will pay the doctor on behalf of the patient. The amount varies by province/specialty/task, but this is what is known as "billing".

Say a family doctor sees a patient. For that service, the government will pay him $100 as the billing. If they see 1000 patients a year they will make $100000 in billings a year. In the most simplest set up, the doctor takes that as his income. They then pay income taxes on the income. Then, the doctor has to pay for "overhead" to be able to provide the service to the patient. For instance, the doctor has to pay rent for a clinic, buy an exam table, pens, paper, etc. tongue depressors, pay the salary of a secretary to answer calls and book patients, pay for malpractice insurance, pay for association membership fees, pay for continuing medical education, etc. This is all "overhead", and it can make up a substantial percentage of your billings, depending on where you practice (rent is higher in downtown Toronto vs rural Ontario), if you share your practice (cheaper to pay 50% of a secretary if you work with another family doctor), or how you practice (if you are an ENT and you're scoping everyone those scopes are not cheap to purchase and maintain). So, ignoring taxes, say all the overhead adds up to $30000 a year, the actual net income will be $70000. Gross income - expenses = net income. However, every year will be different as the amount of billings and expenses change and it could go up or down. The numbers realistically are much different and if you set up a corporation you can pay overhead before taxes but that's a different topic.

Alternatively, the doctor can be hired by a hospital and paid a salary and not have to pay overhead. Instead, when they see a patient, the government pays the hospital. The hospital will pay them a set salary depending on your contract, and it may not matter how many patients they see. So in this example, the hospital will pay them $700000 a year, and it won't be less if there are less patients or expenses are higher, but at the same time if you are a particularly efficient doctor you won't get a higher salary for seeing more patients. The doctor then pays taxes on that fixed income.

Obviously this simplifies things immensely. The radiologist might have a contract where they have a contract where they are paid a set amount for being on call, plus a stipend for every exam they read, but no overhead since the hospital pays for techs, the CT scanner, and the computer to read the exams on, etc.

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Overhead is basically just anything you need to buy or rent to keep your practice going - ranging from office space to equipment to staff to materials. Overhead varies a lot by specialty because different specialties require different amounts of equipment and space to run. 

If you work in the community you typically need to pay for those things yourself. If you work in a hospital, much of it is likely provided for you so you don’t need to buy it yourself. If you are part time in the community and part time in hospital, you’d likely need to pay for those things that you use in your community office but have things provided while you are at the hospital. However some hospitals will take a percentage of your billings as overhead, and the percentage varies from hospital to hospital. I work in a hospital and am not salaried - I make a stipend per half day worked plus what I bill minus some fees charged by the hospital including a percentage for overhead, but it’s a quite low percentage of my billings.  Certainly lower overhead than I’d pay if I had to rent an office and do it all myself, as they provide space, admin support, EMR, office supplies, and all sorts of other things I’m sure I’m not thinking of because I don’t have to buy them myself. 

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On 9/20/2020 at 8:03 PM, cotecc said:

Can someone explain how overhead works.

How does it work for community vs hospital practice?

From what i read, those working in hospitals do not have any overhead, but what about the ophtalmologist, radiologist working full time or patially in a hospital?

I'm in Quebec, if that changes anything

actually those services can have overhead as well - it is just less because somethings are covered by the hospital - like staffing the ORs, or buying some of the equipment etc. That generally makes the overhead less in major hospitals for sure, although I should mention that a radiologist (as an example) outside of the hospital isn't compensated in a some why for paying higher overhead (there are technical and professional fees for services - the technical fees which are supposed to pay for equipment go to the hospital if you work there, and if you work in a clinic somewhere outside they would be a part of your gross billings that are used to pay for the equipment/staff etc.). Beware of that when looking at the gross billings - outside of the hospital billings look huge at times but it is completely misleading. 

Same overhead concepts work for internal medicine as well (just so we don't limit this to smaller specialties) - so a hospital based cardiologist isn't paying for the nurses for instance on the hospital floor. In her clinic off site she would be paying for her staff/building/equipment/supplies- so often there is a mix of things in various specialties. 

 

Edited by rmorelan

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4 hours ago, bearded frog said:

In the most simplest set up, the doctor takes that as his income. They then pay income taxes on the income. Then, the doctor has to pay for "overhead" to be able to provide the service to the patient.

You pay taxes on the net income, not the gross income.

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5 hours ago, The Ace of Spades said:

You pay taxes on the net income, not the gross income.

yeah that was probably reversed by mistake ha - and to make it even more complex your corporate net income is not your personal income either - so you have multiple points of taxation etc. 

point I guess is that doctors are for the most part business men/women, and as such we have the same accounting issues that other business have

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On 9/20/2020 at 11:30 PM, The Ace of Spades said:

You pay taxes on the net income, not the gross income.

If you have a corporation, indeed. I put "the simplest" there as corporations and business taxes vs income taxes and expenses are another layer of complexity and I just wanted to explain overhead.

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On 9/20/2020 at 6:18 PM, bearded frog said:

Say a family doctor sees a patient. For that service, the government will pay him $100 as the billing. If they see 1000 patients a year they will make $100000 in billings a year. In the most simplest set up, the doctor takes that as his income. They then pay income taxes on the income. Then, the doctor has to pay for "overhead" to be able to provide the service to the patient.

100k billings, pay over your 30% overhead (30k), and then you have 70k income pre-tax. Then 50k leftover after income tax into you're account.

You don't need to be incorporated, it just depends on how billings are collected.  

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Note that in Alberta the overhead thing in vs out of hospital just got more complicated, due to changes in billing codes that results in in-hospital services being billed with a low payment set of codes as these services are seen to "lack overhead" due to working in the hospital. Of note, many still pay overhead for some services and/or spaces in hospital (e.g. an office). 

The ramifications of this change are yet be seen and felt. Inpatients are inpatients because they are inherently more acute/complex cases. I am aware of several physicians who have left inpatient jobs and even left the province because of the change.

Just an aside to state that overhead isn't a straight forward thing!

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