Practice Expense Benchmarks: How Much Should You Be Spending?

Every practice owner knows how much they collect. Far fewer know exactly where those dollars go — or whether their spending mix is healthy. This guide organizes the most current data available from MGMA, the American Medical Association, and industry analysts to answer the question: what percentage of collections should each expense category consume?

Let's start with the headline numbers. MGMA's core benchmark places the average private practice overhead at approximately 60% of revenue. In June 2025, MGMA reported that 90% of medical groups experienced higher operating costs versus the prior year, with an average year-over-year increase of 11.1% — the third consecutive year the vast majority of groups reported cost increases. The trend has not reversed heading into 2026.

Overhead Ratio by Specialty

Not all specialties have the same cost structure. Overhead varies based on staffing intensity, supply consumption, procedure mix, and payer reimbursement rates. The table below synthesizes MGMA Cost Survey medians and industry analysis:

Sources: MGMA Cost Survey medians (via Sorso, GetPracticeHelp analysis of MGMA DataDive), 2024–2026. Overhead = (Total Operating Expenses − Provider Compensation) / Total Collections.

The Sorso analysis, which draws on MGMA's Cost Survey, offers a useful shorthand: primary care 55–65%, internal medicine 58–65%, orthopedics and dermatology 50–58%, cardiology 50–56%, OB/GYN 55–62%. A 5 percentage point reduction in overhead on a $5M practice represents $250,000 of additional owner profit.

Expense Category Benchmarks

Total overhead is useful, but the real insight comes from breaking it into components. According to MGMA and supplemental industry data, typical medical practice expenses break down as follows when expressed as a percentage of total collections:

Sources: MGMA DataDive Cost and Revenue benchmarks; MGMA Stat poll data, June 2025; Sorso analysis of MGMA Cost Survey; GetPracticeHelp industry analysis. Ranges represent medians for private independent practices. Quartile breakouts show top-performers often run 6–10 points lower in several categories.

What These Numbers Mean

Support staff (25–35% of collections) is the largest and most controllable expense. MGMA's June 2025 Stat poll named staffing costs — salaries, benefits, and competitive pay adjustments — as the #1 driver of operating expense increases. According to Kaufman Hall's Physician Flash Report, labor costs now account for approximately 84% of total medical group expenses in hospital-owned models. In independent practices, total labor (including provider compensation) typically consumes 50–60% of operating expenditure.

Occupancy (4–8% of collections) should trigger an immediate review if exceeding 10%. A 1,600 sq ft medical suite typically runs $45,000–$55,000 annually in most markets. The Sorso analysis recommends starting lease renegotiations 12 months before renewal, noting that vacancy rates below 9.5% give landlords leverage — but tenants negotiating early still capture concessions on tenant improvement dollars and free rent.

Billing / RCM (5–8% of collections) varies by whether services are in-house or outsourced. Industry-standard outsourced rates are 5–8% of collections for independent practices. In-house billing requires $45,000–$65,000 per FTE plus benefits and software, making it cost-effective only above certain claim volumes. Clearinghouse fees add $0.30–$0.75 per claim plus monthly access fees.

Medical supplies (3–8% of collections) is where specialty variation is widest. A primary care practice might spend 2–3% on vaccines and injectables. An orthopedic or surgical practice can spend 10–15% on implants and devices.

IT / EHR (2–5% of collections) includes software licenses, hardware, and support staff. This category has trended upward as practices invest in patient portals, telehealth infrastructure, and interoperability compliance.

Expense Trends (2013–2026)

Understanding the trajectory matters more than any single year's number. The MGMA has tracked five-year revenue and expense patterns showing a persistent gap between cost growth and reimbursement growth:

• Total operating cost per FTE physician rose more than 63% from 2013 to 2022 (MGMA).
• The Medicare conversion factor increased only 1.7% over the same period — meaning the gap between practice costs and government reimbursement widened dramatically. The 2026 increase (3.26%–3.77%) was the first meaningful correction but still lags cumulative inflation.
• 90% of medical groups reported increased operating costs in 2025, with an average year-over-year increase of 11.1% (MGMA Stat, June 2025). This followed 92% reporting increases in 2024.
• Support staff compensation saw some of the sharpest increases: general accounting staff pay jumped 52.1% over the past decade; managed care administrative roles rose 39.1% (MGMA Management and Staff Compensation Data Report, 2025).

These trends mean that a practice with stable overhead as a percentage of collections is actually doing well — because costs are rising faster than revenue in most segments. Any increase in the ratio signals a structural problem, not a temporary blip.

Quartile Benchmarking: Where Top Performers Differ

MGMA DataDive provides quartile breakouts that reveal where top-performing practices (those in the 25th percentile for expense efficiency) separate from median and bottom-quartile practices. While specific numbers differ by specialty, the patterns are consistent:

Source: MGMA DataDive Cost and Revenue survey data, as summarized by MGMA and industry analysts. Quartile thresholds are approximate and vary by specialty and practice size.

The gap between top-quartile and median performers is driven primarily by two factors: staffing efficiency (right-sized teams per provider FTE) and revenue cycle discipline (faster charge capture, lower denial rates, fewer days in A/R). Top performers do not necessarily pay less per employee — they achieve higher revenue per support staff dollar.

How to Measure Your Own Practice

Use this formula, consistent with MGMA methodology:

Overhead % = (Total Operating Expenses − Provider Compensation) ÷ Total Collections × 100

Compare your result against the specialty-specific range above. If you are above the typical range, investigate the categories where your spending deviates most from the benchmarks.

A more detailed approach is to calculate each expense category as a percentage of collections independently. Most billing systems can produce a standard profit-and-loss report categorized by the line items in the expense table above. Divide each line by total collections for the same period (typically the trailing 12 months) and compare against the category benchmarks.

Warning signs that warrant immediate investigation:

• Total overhead above 70% in any primary care or surgical specialty
• Occupancy above 10% of collections
• Billing/RCM costs above 8% of collections (unless you are a very small practice)
• Support staff costs above 35% of collections with no corresponding productivity advantage
• Overhead ratio increasing year-over-year for two consecutive years

Limitations and Caveats

Benchmarks are directional, not prescriptive. A solo psychiatrist running 10% overhead and a high-volume primary care group at 65% can both be operating efficiently for their context. Key factors that affect your appropriate benchmark include:

• Ownership model — hospital-owned practices typically report higher total costs (including employed provider compensation) than independent physician-owned practices. MGMA DataDive allows filtering by ownership type to make apples-to-apples comparisons.
• Geography — occupancy and labor costs vary significantly by region. Practices in high-cost metropolitan areas will naturally have higher overhead percentages for the same service mix.
• Payer mix — a practice with 60% commercial revenue will have higher collections for the same encounter volume as a practice with 60% Medicare/Medicaid, making the overhead percentage lower for the commercial-heavy practice even with identical expenses.
• Practice size — solo and small practices often have higher overhead percentages because fixed costs (EHR, billing, compliance) are spread across fewer providers.

Sources

• MGMA DataDive Financials and Operations — Cost and Revenue survey data (2024–2026). mgma.com/datadive
• MGMA Stat Poll: "Medical practice operating costs are still rising in 2025." June 2025. mgma.com/mgma-stat
• MGMA Management and Staff Compensation Data Report, 2025. mgma.com
• Sorso, "Outpatient Clinic Finances 2026: Free 10-Chapter Report." thesorso.com/state-of-clinic-finances-2026
• Sorso, "What is a good overhead ratio for medical practices?" thesorso.com/answers/good-overhead-ratio
• GetPracticeHelp, "Medical Practice Overhead Costs (2026): Real Benchmarks by Specialty." getpracticehelp.com
• Kaufman Hall, Physician Flash Report (labor cost data).
• MGMA, "Understanding cost and revenue data." mgma.com/articles
• MGMA Cost and Revenue Operating Expenses Glossary. mgma.com/cost-rev-operating-expenses