What the back office costs, by specialty

Everyone prices the practice. Almost nobody prices the practice's back office, even though it is the thing an MSO buys, the thing a management fee pays for, and the line a regulator now asks about. So here is the number, for 25 physician specialties, from public CMS data covering roughly 1.1 million clinicians: what non-clinical services cost as a share of practice net revenue.

The headline is the spread. The median specialty carries non-clinical costs of 46.6% of net revenue. The range is 16.6% to 75.7%, a 4.6x gap between emergency medicine and diagnostic radiology. Ten of the 25 specialties sit at 50% or above. Seven sit below 40%.

The full table

Specialty Median non-clinical cost, % of net revenue Diagnostic radiology 75.7 Pathology 73.0 Vascular surgery 67.5 Dermatology 61.4 Optometry 57.4 Cardiology 57.1 Ophthalmology 55.3 Podiatry 55.3 Otolaryngology 54.0 Urology 50.4 Plastic and reconstructive surgery 48.9 Orthopedic surgery 48.4 Rheumatology 46.6 Family practice 46.5 Neurology 45.5 Endocrinology 44.5 Physical medicine and rehabilitation 43.2 Anesthesiology 40.8 Pulmonary disease 38.5 Internal medicine 37.4 Gastroenterology 37.2 Psychiatry 36.8 General surgery 36.3 Nephrology 33.4 Emergency medicine 16.6

Medians, blended across sites of service. Free figures from the MSOs module, where each specialty's median is public.

Why the spread is this wide

A specialty's overhead is whatever it cannot hand to a hospital. Diagnostic radiology and pathology top the table because the practice owns the expensive part: imaging equipment, lab benches, technical staff. Dermatology at 61.4% is the classic MSO target for the same reason, an office specialty that owns its rooms, staff, and machines. At the bottom, emergency medicine's 16.6% is mostly an accounting fact. The hospital owns the department, so the physician practice carries little beyond billing and malpractice.

That bottom row is also the caveat. Blended medians reflect where each specialty actually practices, and facility-heavy specialties push their number down. Strip out emergency medicine and the spread between radiology and nephrology is still 2.3x. Specialty remains the biggest overhead lever in medicine either way.

Geography is a smaller lever than people assume

The instinct is that a Manhattan practice's overhead dwarfs a Mississippi one. Directionally yes, proportionally no. CMS prices practice expense across 109 localities, and the index spans 0.852 in Mississippi to 1.435 in San Jose. That is a 1.7x gap on the same basket of costs, against 4.6x for specialty. Pick the wrong city and your cost base moves by half. Pick the wrong specialty benchmark and it moves by multiples.

From cost to fee

This table is check one of a two-check method. What the services should cost is the cost base; what a comparable manager earns above cost is the markup, a median 22.7% on cost implied by 73 healthcare outsourced-services M&A comparables. Cost plus markup is the fee structure that survives regulatory review, and the full method is here. A dermatology MSO providing the full non-clinical stack can support a fee near 75% of revenue. A nephrology MSO cannot, and a fee copied from one deal to the other is how platforms end up explaining themselves to a state agency.

Specialty pages with each free median: dermatology, cardiology.

Common questions

What percentage of revenue does practice overhead take? The median specialty's non-clinical costs are 46.6% of net revenue. The range across 25 specialties is 16.6% (emergency medicine) to 75.7% (diagnostic radiology).

Which specialty has the highest practice management costs? Diagnostic radiology at 75.7% of net revenue, followed by pathology at 73.0% and vascular surgery at 67.5%. Equipment-owning specialties dominate the top of the table.

Does location change practice costs? Less than specialty does. The CMS practice expense index spans 0.852 to 1.435 across 109 localities, a 1.7x gap, versus a 4.6x gap between specialties.

What should an MSO charge for these services? Their cost plus a fair market value markup. The median markup implied by comparable-manager EBITDA margins is 22.7% on cost. See the fee benchmark guide.

Sources and method

Built from public CMS data covering roughly 1.1 million clinicians. Non-clinical cost is expressed as the median percentage of practice net revenue, by specialty, blended across sites of service. Locality figures are CMS practice expense geographic indices across 109 Medicare localities. Figures cited are free-tier medians from the MSOs module; full distributions, site-of-service cuts, and locality detail sit behind the subscription.

This article is a market-data benchmarking resource. It does not provide, and must not be relied upon as, a fair market value determination, valuation opinion, appraisal, or legal, tax, or compliance advice. The opinion of value for any specific arrangement remains the professional judgment of a qualified appraiser.