The 'fixed cost effect' on practice management

To obtain a better understanding of the behavior of "non-professional" costs in a medical practice, the authors analyzed the expenses of a 19-doctor practice. The analysis revealed that 80 percent of these expenses were fixed costs. Fixed costs, as opposed to variable costs, remain static in total but vary on a per unit basis as volume changes. Organizations with high fixed cost must maximize capacity to achieve profitability. Thus, the relationship among volume, capacity, cost and profit must be understood by medical practices negotiating rates for service units.