For most, credit collections and subtract expenses

A: Probably no more contentious issue exists in group practices than how to divide income and expenses. Although no formula is right for every group, one is right for each group. The simplest formula is usually the most complex in application: parceling out net income equally to the owners. Some practices are staunch supporters of this egalitarian approach, but it has one big problem with it. Doctors are equal only in the eyes of God and the federal government.

An equal-share income or expense distribution formula assumes that each doctor makes an equal contribution to the practice and should, therefore, benefit equally. When it's impossible to measure the contributions of physicians objectively and they are all valued, an equal distribution mechanism might be fairest approach. For example, if one physician is a high-income producer, another a public relations magnet, and the third is a management wizard, then it may be easiest to ignore the differences and simply declare them to be equal for compensation purposes. As long as they all agree, this system will work.

Allocating expenses to the doctors is done on three levels. First, fixed costs are split equally. These expenses include rent, utilities, legal and accounting fees, and casualty insurance premiums. Next, most of the rest of a practice's overhead is variable cost-expenses or employee time that rises and falls more or less in step with the activity of physicians. Examples include employee salaries and benefits, office and medical supplies, telephone service, and so on. These costs are allocated to physicians according to some measure of activity, often the appropriate share of gross production produced by each doctor, or patient count through the office. Finally, direct costs exist that should be allocated only to certain physicians. These nonshared expenses include any items that benefit only specific doctors, such as travel and entertainment expenses, automobile costs, dues to professional associations, and the like.

Answers to our readers' questions were provided by Judy Bee, Practice Performance Group, La Jolla, California. She is also an editorial consultant to Medical Economics Send your practice management questions to medec@advanstar.com Also engage at http://www.twitter.com/MedEconomics and http://www.facebook.com/MedicalEconomics.