Healthcare Overhead Reduction: Occupancy Cost Is the Overlooked Lever
MGMA data puts total medical practice overhead near 60% of gross collections. Staffing leads that number. Supplies, technology, and malpractice insurance come next. Then there is occupancy cost. That is base rent, property taxes, insurance pass-throughs, and CAM charges. CAM means Common Area Maintenance, the shared building costs. Occupancy sits at 6% to 8% of collections. It rarely gets checked as hard as the rest of the cost sheet.
That gap is where revenue-only advisors leave money behind. An RCM firm can fix billing, cut denials, and speed up collections by 5%. That might add $100,000 in collected revenue for a mid-size practice. RCM means revenue cycle management. Now say the same firm also finds a $9,000 yearly CAM overcharge. That $9,000 costs nothing to deliver. It goes straight to the bottom line.
I built CAMAudit so advisors can do this without being real estate experts. The tool compares the landlord's yearly bill to the lease. Then it flags every charge that goes past what the lease allows.
Healthcare Practice Overhead Rate: The percentage of a medical practice's gross collections consumed by operating expenses, including staffing, supplies, technology, malpractice insurance, and occupancy. MGMA benchmarks place the median total overhead rate at approximately 60%. Occupancy costs, which include base rent under the commercial lease plus NNN pass-throughs for property taxes, building insurance, and CAM, typically represent 6% to 8% of collections. CAM is the most variable and least-audited component of occupancy cost.
The biggest cost no one checks
Staffing costs get checked all the time. Every payroll run and productivity report is a look at the labor line. Supply costs get checked through buying contracts and rebate programs. Technology costs get reviewed at renewal. Malpractice gets benchmarked each year.
Occupancy gets checked almost never.
Base rent is easy to verify. It is a fixed number in the lease. Property taxes match county records. Building insurance has a declaration page. But CAM is different. It is the yearly bill that shows the tenant's share of real building costs. It arrives once a year with a check due in 30 days. Most practices pay without checking the math.
BOMA International data shows that bill errors happen across all property types. That includes medical office buildings. These buildings cost more per square foot to run than plain offices. The shared systems are clinical-grade. Think tighter-humidity HVAC, special elevator upkeep, clinical utility lines, and healthcare security. A bigger cost pool means a bigger dollar error when the math goes wrong.
Say a practice pays $14 per square foot in CAM on a 3,000 square foot suite. That is a $42,000 yearly CAM bill. Now say the landlord adds a 1% management fee on a base that includes excluded items. That can add $600 to $1,500 to the bill. The exact amount depends on total building costs. A pro-rata share error that drops vacant space can raise the tenant's share by 15% to 25%. Pro-rata share is the tenant's slice of shared costs.
The expense-side gap in RCM work
RCM consultants see the revenue cycle as two flows. Money comes in from payers. Money goes out to operations. The work that shows the most ROI lives on the revenue side. That means cutting denials, fixing coding, speeding up cash posting, and renegotiating payer contracts.
The expense side gets less attention. Practice managers track supply costs and staffing tight. Those costs move fast when you act. Occupancy costs look fixed. The lease is signed. The rent is the rent. The CAM bill seems like just a yearly tweak.
That view is wrong. CAM is not a fixed cost. The landlord works it out from a formula in the lease. The math can go off in a few ways. A wrong pro-rata share base. A management fee on too broad a base. A capital cost the lease excludes. Each one is a billing error against the contract. And each one can be recovered.
RCM advisors who see this have a head start. They already hold the client relationship. They already review the P&L. They already work to find recoverable dollars. Adding occupancy cost review needs no new clients. It needs no new skill. It just needs a tool that compares the lease to the bill.
"RCM advisors optimize the revenue side of healthcare operations with precision. After testing reconciliation samples from published audit cases through CAMAudit, the occupancy cost line shows the same kind of unchecked billing errors that RCM work finds in insurance payments. The model for recovery is identical." - Angel Campa, Founder of CAMAudit
What MGMA data shows about size
MGMA's DataDive Cost and Revenue data sets the frame here. It tracks occupancy cost as a share of collections. The core finding is simple. Occupancy runs 6% to 8% of gross collections for a median primary care practice. It runs higher for specialty practices in medical office buildings.
Take a primary care practice that collects $1.5 million a year. That 6% to 8% range is $90,000 to $120,000 in yearly occupancy cost. CAM is usually 30% to 50% of that total. So CAM alone runs $27,000 to $60,000 a year.
A 10% error on a $40,000 CAM bill is $4,000. Most leases let you look back 3 years. That makes $12,000 to recover from one job. At a 60% overhead rate, recovering $12,000 in CAM matches the income of $30,000 in new revenue.
Specialty practices face bigger numbers. Picture an orthopedic group in a 6,000 square foot suite. At $15 per square foot, that is $90,000 a year in CAM. A 5% overcharge is $4,500 a year. A 3-year look-back recovers $13,500.
These are not made-up guesses. This is the plain math of bills sitting in client files right now, unchecked.
The three CAM overcharges that hit healthcare most
I tested reconciliation samples from published audit cases through CAMAudit. Three overcharge types show up often in healthcare leases.
Management fee overcharges
The management fee pays the firm that runs the building. It sits in the CAM pool. Most leases cap it as a percent of gross costs or gross revenue. The overcharge happens when the landlord uses a base bigger than the lease allows.
Common base errors in these leases come in a few forms. Charging the fee on total revenue that includes capital recovery. Applying the percent to a gross figure with excluded costs in it. Or failing to drop certain cost types from the fee base. Each one pushes the fee past the lease limit.
CAMAudit's management fee rule checks the billed fee against the lease cap. It flags the gap. Each finding shows the lease clause, the allowed fee, the billed fee, and the dollar difference.
Pro-rata share errors
The pro-rata share formula sets the tenant's slice of building costs. The lease names the top number, the tenant's space. It names the bottom number, the building's total leasable space. Errors happen when the landlord uses a bottom number the lease does not allow.
Healthcare tenants face two tricks here. Vacancy cuts drop empty suites from the bottom number. That inflates every other tenant's share. Anchor-tenant cuts drop big tenants who got their own CAM deal. That shifts more cost onto smaller tenants. If the lease does not allow these cuts, the share is an overcharge.
ASHRAE standard 62.1 sets air rules for medical spaces. So MOB HVAC systems cost more to run than plain office HVAC. Higher HVAC costs in the pool make pro-rata share errors hurt more.
Capital costs billed as operating costs
Most leases split two kinds of cost. Operating expenses are the regular costs to run the building. Capital expenditures are the costs of upgrades that extend the building's life. Most leases keep capital costs out of CAM. Or they spread them over the upgrade's useful life. That spreading is called amortization.
The overcharge happens when a landlord bills a full capital cost in one year as "maintenance." Roof swaps, HVAC unit swaps, elevator upgrades, and lot resurfacing are common cases. IRS Publication 535 covers repairs versus upgrades. ASC 840 and ASC 842 cover capital versus operating costs. Together they help sort the two. But the lease text rules what belongs in the CAM pool.
Take a 40,000 square foot MOB. A tenant holds a 7.5% share. An HVAC chiller swap costs $200,000. The lease says spread it over 15 years. Bill it in one year instead and the tenant overpays $11,250 that year.
How to add occupancy review to a healthcare engagement
Adding a CAM audit to your existing work is simple. It takes two extra steps.
First, screen clients to find who has CAM exposure. Look for NNN or modified gross leases with CAM pass-throughs. NNN means the tenant pays taxes, insurance, and CAM on top of rent. Gross-lease clients have no CAM exposure. NNN and modified gross clients do.
Second, collect the documents. You need the latest CAM bill, which is the yearly true-up from the landlord. You also need the lease parts that cover the cost list, the exclusion list, the pro-rata share formula, and the management fee cap. Most clients have these on file.
From there, CAMAudit reads the documents and returns a findings report. Internal review takes 20 to 45 minutes per job. You deliver it like any overhead report. Findings, dollar impact, and next steps.
Want to refer clients instead of running the work yourself? The revenue-sharing program at /partners/revenue-sharing pays a cut of each audit fee for referred clients. Want to deliver under your own brand? The white-label program at /partners/white-label sets up a branded client space with your firm's logo and contact details throughout.
Related resources
- RCM consultant new service line: CAM audit recovery: the full guide to adding occupancy cost recovery to an RCM practice
- Medical group CAM audit white label: branded delivery for firms that serve multi-location medical groups
Sources
- MGMA DataDive Cost and Revenue, Practice Overhead Benchmarks (2025). https://www.mgma.com/data/benchmarking-data/datadive-cost-and-revenue
- BOMA International. Experience Exchange Report (2024). https://www.boma.org/
- IREM. Income/Expense Analysis: Office Buildings (2024). https://www.irem.org/
- ASHRAE. Standard 62.1: Ventilation and Indoor Air Quality (2022). https://www.ashrae.org/
- IRS Publication 535. Business Expenses. https://www.irs.gov/publications/p535
- FASB. ASC 842: Leases. https://www.fasb.org/
Disclaimer: This article provides general educational information about occupancy cost components in medical practice overhead and the role of CAM audit in healthcare advisory engagements. This is not legal, accounting, tax, or financial advice. MGMA benchmark figures are sourced from published MGMA DataDive reports and are national medians; individual practice overhead rates vary. Consult qualified legal and accounting counsel before pursuing CAM disputes or adding new advisory service lines.
Frequently Asked Questions
How much of a medical practice overhead rate comes from occupancy costs?
MGMA benchmarking data places occupancy costs at 6% to 8% of gross collections for a typical medical practice. At a 60% total overhead rate, occupancy is the second-largest overhead category after staffing. For specialty practices in medical office buildings with higher per-square-foot lease rates, the percentage can reach 10% or more.
What is the difference between base rent and CAM in a medical office lease?
Base rent is a fixed monthly amount specified in the lease. CAM is a variable annual charge representing the tenant's proportional share of building common area maintenance expenses. Under a triple-net or NNN lease, the tenant pays base rent plus a pro-rata share of CAM, property taxes, and building insurance.
Why do RCM advisors overlook CAM overcharges when optimizing healthcare overhead?
CAM charges appear as a single line item inside the occupancy cost bucket on the P&L. They look fixed. The reconciliation statement arrives annually from the landlord and is dense enough that most practice managers accept it without detailed review. RCM advisors focused on revenue optimization rarely see the full occupancy cost breakdown.
What types of CAM overcharges are most common in medical office buildings?
The three most common overcharge patterns are: management fee calculated on an unauthorized expense base; pro-rata share calculated using a denominator that excludes vacant or anchor tenant space without lease authorization; and capital expenditures charged as operating expenses rather than amortized or excluded per the lease.
How does a CAM audit fit into an existing RCM or healthcare advisory engagement?
A CAM audit adds one module to an existing overhead reduction engagement: occupancy cost forensics. The advisor collects the reconciliation and lease documents, runs the audit through CAMAudit, and delivers findings in a client meeting. No new infrastructure is required.
What is the typical recovery from a CAM audit for a medical practice?
Recovery amounts depend on the lease and overcharge type. Practices in medical office buildings often see CAM billing errors in the range of $3,000 to $15,000 per year when errors exist. Multi-year lookback provisions in most leases allow recovery of overcharges from the prior 1 to 3 years.