How to Calculate Overhead for a Faculty Practice

Medical schools that want to attract top faculty often face the challenge of pay. Physicians have a difficult time passing up a lucrative medical practice -- as well as setting aside their love of it -- to teach. That's why many schools and universities have implemented faculty practices, which not only give medical faculty a way to keep a balanced career, but lend the credibility and reputation of a good medical school to their practice. Universities also generate funds from this arrangement, taking a percentage of the revenues. Calculating the overhead of a faculty practice means taking account of all mandated expenses.

Instructions

• 1

  Determine the cost of rent for the space in which the faculty practice operates. In some cases, practices may be on university campuses and simply receive a cost allocation from the university at internal rent rates, which are typically cheaper than market rates. However, many practices are off-site and pay commercial rent. In such cases, lease contracts will have this information.

• 2

  Tally your committed compensation costs for everyone associated with the practice, including support staff. Do not include performance-based or bonus compensation in this calculation, only base salaries and estimated annual totals of hourly wages.

• 3

  Add up your administrative costs including billing, collections, marketing, advertising and any other budgeted administrative or constant expenses as approved by your board of directors or dean.

• 4

  Review your malpractice insurance premiums.

• 5

  Calculate the sum of your accounting, legal and other professional consulting fees.

• 6

  Tally your consumables, including office and administrative supplies, utilities, postage and medical supplies.

• 7

  Determine your capital expenditures for office and medical equipment. If you lease any equipment, monthly lease rates fall into this category.

• 8

  Project the refunds, write-offs and bad debt costs you incur in an average year.

• 9

  Calculate the practice's payment to the university. Most schools take a percentage of faculty practice revenues to give to their medical or nursing colleges. For example, New York University takes 5 percent from its faculty practice revenue. You will need a budgeted or estimated revenue, or last year's revenue total as a reference.

• 10

  Add all the figures from Steps 1 through 9 to get your total overhead. This number does not include bonuses, performance compensation or fringe benefits that faculty practices may elect to give in a budget year. Additionally, many schools withhold bonuses if faculty practice revenues do not exceed their standard operating expenses.