Rising Practice Costs in 2027: How to Protect Profitability Without Cutting the Wrong Things

If rising payroll and operating costs are keeping you up at night, you’re not alone. We recently asked office managers a simple question: What is your biggest financial concern heading into 2027? The answer wasn’t even close. A staggering 92% said rising payroll and operating costs were their biggest concern. Another 7% said keeping the practice profitable as costs increase, while only 1% selected insurance reimbursements not keeping up. That tells us something important. Practice leaders aren’t just focused on how much revenue is coming in anymore. They’re paying much closer attention to how much it costs to produce that revenue. And they should be.

Payroll Is One of the Biggest Expenses in Your Practice

For most medical and dental practices, labor is one of the largest expenses on the books. Once you factor in doctor compensation, employee wages, payroll taxes, benefits, retirement contributions, paid time off, training, overtime, and turnover, labor-related costs can easily consume a significant portion of practice revenue. Think about it this way: if you collect one dollar and 50 cents of that dollar goes toward labor, you have 50 cents left to cover everything else. If labor climbs to 65 cents, now you only have 35 cents left. That difference can completely change the profitability of a practice. But that doesn’t mean the solution is simply cutting staff.

The Cheapest Team Isn't Necessarily the Best Team

You need good people to run a successful practice. If you cut staffing too aggressively, important work simply stops getting done. Training gets pushed aside, employees become overwhelmed, customer service suffers, billing slows down, and team members burn out. Eventually, your best employees may start looking somewhere else. Today, medical and dental practices also aren’t just competing against other practices for employees. You’re competing against restaurants, retailers, grocery stores, Costco, and countless other employers that may be offering competitive wages with significantly less responsibility. The goal shouldn’t be to build the cheapest team possible. The goal should be to build a team that creates the highest value possible.

You Can't Keep Adding Work Without Adding Capacity

Office managers often get stuck in the middle. The practice owner says expenses need to come down, while the manager is still expected to keep every system, project, patient process, report, compliance requirement, marketing initiative, and administrative responsibility running smoothly. At some point, the math doesn’t work. You can’t expect a team staffed to accomplish 20 things to consistently accomplish 50. That doesn’t mean practices shouldn’t become leaner. It means becoming leaner has to come from better systems and better decisions, not simply putting more pressure on fewer people.

Technology Has to Be Part of the Solution

This is where practices that have continuously improved their systems have an advantage. If your office is still doing something manually that technology could handle 80% or 90% of, you’re paying employees to do work that may no longer need to be performed the same way. That doesn’t necessarily mean eliminating someone’s job. Often, technology allows the employee to move away from repetitive work and spend more time reviewing information, solving problems, improving the patient experience, or doing higher-value work. Practices that continue operating exactly as they did five or ten years ago are going to have a much harder time absorbing rising labor costs. The goal should be simple: use technology to eliminate low-value work so your people can focus on higher-value work.

Healthcare Is Becoming More Complex

Unfortunately, labor isn’t the only pressure practices are facing. Medical and dental offices are becoming increasingly complicated to operate. There are more rules, more compliance requirements, more billing requirements, more documentation, and more insurance hurdles. Every additional step costs something. Sometimes that’s additional employee time, sometimes it’s additional software, and sometimes it’s outsourcing. Eventually, all of that complexity shows up as an operating expense. At the same time, practices may be dealing with reimbursement pressure from Medicare, Medicaid, and private insurance companies. That creates an uncomfortable situation: your cost of delivering care goes up while the amount you’re paid for that care may stay flat or even decline. That model becomes very difficult to sustain without change.

Practices May Need to Rethink Their Insurance Mix

One of the biggest strategic questions practice owners should be asking is: Does it still make financial sense to participate with every insurance plan we’re currently accepting? That doesn’t mean every practice should immediately drop insurance, but you should understand the economics of each payer. If reimbursement doesn’t adequately cover the labor, supplies, administrative work, and overhead required to provide the service, something eventually has to change. That may mean renegotiating contracts, reducing participation with certain plans, or increasing your cash-pay services. For some practices, moving toward a greater percentage of cash-based care may become an increasingly important part of remaining financially healthy.

Rising Supply Costs Require Better Measurement

Supplies are another area where costs will continue to matter. When prices increase, don’t simply assume there’s nothing you can do about it. Ask questions. Can we buy differently? Can we negotiate pricing? Can we consolidate vendors? Can we eliminate unnecessary products? Can we change the workflow without changing the quality of care? Pressure often forces innovation, and while nobody enjoys rising costs, they can force practices to rethink processes they may never have questioned otherwise.

There’s also an important distinction in how you measure supply costs. Instead of only looking at supplies as a percentage of collections, consider measuring Supply Cost ÷ Number of Patient Visits. Why? Because percentages can sometimes hide the real problem. Imagine that your supply cost per patient stayed exactly the same, but insurance reimbursements decreased. Your supply percentage would suddenly look worse even though you didn’t actually start using more supplies. Looking at cost per visit gives you another perspective on what’s really happening.

Start With a Vendor Summary

If you’re looking for one practical step you can take immediately, start here: run a Vendor Summary Report in QuickBooks. Instead of looking only at your Profit & Loss statement, look at exactly who your practice is paying. Then go down the list and ask, Do we still need this vendor? You may discover subscriptions nobody uses anymore, software that duplicates another system, services that were helpful three years ago but aren’t necessary today, contracts that can be cancelled when they expire, or vendor relationships that could be renegotiated.

Next, compare vendor spending year over year. How much did you spend with your primary dental or medical supply company last year? How much have you spent this year? Did the number of patient visits increase enough to justify the increase? The goal isn’t just to find expenses that went up. The goal is to understand why they went up.

Review Your Staffing Structure Too

Heading into 2027 is also a good time to review your organizational chart, but don’t just look at names and titles. Look at functions. What work actually needs to happen inside the practice? Who is responsible for each function? Are multiple employees doing the same thing? Are there responsibilities nobody truly owns? Are highly paid employees spending time on tasks that could be automated, delegated, or eliminated? Compare the organization you currently have with the organization the practice actually needs. Sometimes the biggest opportunity isn’t cutting an employee. It’s reorganizing the work.

Pressure Should Force Better Decisions

There is no question that 2027 may be more financially challenging for medical and dental practices than previous years. Payroll will continue to matter. Benefits will continue to matter. Supply costs will continue to matter. Insurance reimbursement will continue to matter. Administrative complexity will continue to matter. But the answer isn’t panic. It’s continuous improvement.

Ask yourself: What part of this job doesn’t need to be done anymore? What could technology handle? What could we do differently? What expense are we paying simply because we’ve always paid it? Which services or insurance contracts are no longer financially sustainable? Practices that regularly make small improvements will be in a much stronger position than those waiting until expenses become an emergency.

You don’t have to solve every financial challenge at once. Start with one practical step. Run your vendor summary. Review your staffing structure. Measure supply cost per patient. Look for work technology can eliminate. Then make the next improvement. Because the practices that succeed through rising costs won’t necessarily be the practices that spend the least. They’ll be the ones that learn how to create the most value with every dollar they spend.