When launching a medical practice, understanding your financial benchmarks is essential—especially your EBITDA margin (Earnings Before Interest, Taxes, Depreciation, and Amortization). This metric reflects the profitability of your operations before non-operational expenses and can help you measure your practice’s financial health.
According to the Medical Group Management Association (MGMA), the average EBITDA margin for U.S. medical practices was approximately 17.5% in 2021. However, that average masks a wide range of variability depending on specialty, size, location, and maturity of the practice.
What’s Considered a “Good” EBITDA Margin for a New Practice?
For fledgling or newly established practices, an EBITDA margin between 10% and 15% is generally considered healthy. In the early years, margins tend to be lower as practices invest heavily in:
- Equipment and technology
- Staff and onboarding
- Marketing and patient acquisition
- Leasehold improvements or office build-outs
Moreover, some specialties like plastic surgery, dermatology, and outpatient surgical centers tend to command higher EBITDA margins due to elective, cash-pay procedures and higher reimbursements. Conversely, family medicine and primary care practices often see thinner margins.
How to Increase Your EBITDA Margin
Improving your EBITDA margin means increasing revenue, controlling expenses, or ideally, both. Here are actionable strategies tailored to medical practices:
1. Expand Revenue Streams
- Introduce Telehealth Services
Offer virtual visits for follow-ups or chronic care management. Telehealth can attract patients from rural areas and reduce no-shows. - Leverage Remote Patient Monitoring (RPM)
Use wearable or connected devices to monitor chronic conditions like hypertension or diabetes—boosting patient engagement and generating additional billable services. - Offer Chronic Care Management (CCM)
Provide ongoing care coordination for patients with multiple chronic conditions, a program often reimbursed by Medicare. - Add Behavioral Health Services
Integrating mental health services (e.g., therapy, counseling, or psychiatry) into your practice addresses a growing need and increases billable hours. - Focus on Preventive Care
Encourage screenings, vaccinations, and annual wellness visits. These services are often covered by insurance and contribute to better patient outcomes.
2. Control and Reduce Expenses
- Negotiate with Vendors
Regularly review vendor contracts for medical supplies, software, and services. Don’t hesitate to shop around or renegotiate terms. - Automate and Streamline Operations
Use practice management software to automate scheduling, billing, and follow-up reminders. Reducing paperwork and manual entry saves both time and labor costs. - Right-size Your Staff
Ensure your staffing levels align with patient volume. Cross-train employees to improve flexibility and coverage without overstaffing. - Optimize Your Office Space
Sublet unused office space, or consider shared locations if you’re not operating full-time. Flexible leases or co-working spaces can reduce overhead.
3. Improve Collections
Outstanding patient balances and slow insurance reimbursements can severely impact cash flow. Work with your front office to:
- Collect co-pays and deductibles upfront
- Send timely statements and reminders
- Automate follow-ups for unpaid balances
- Use billing software to flag claims needing attention
Consult a Financial Expert
If your EBITDA margin isn’t where you want it to be or you’re unsure how to benchmark your performance, consulting with a CPA or healthcare financial advisor can be invaluable. A specialist can help you:
- Set up proper accounting structures
- Forecast cash flow
- Analyze your cost structure
- Recommend strategic tax planning tools
Launching a medical practice is a major undertaking, and profitability doesn’t happen overnight. But with strategic planning and the right financial oversight, you can steadily grow your EBITDA margin and build a thriving, sustainable practice.