Quick answer
Medical practices have dependable Medicare income, but costs and receipts do not line up. Pressure points are quarterly bulk billing incentive payments, practice service fees shared with contractor doctors, payroll tax assessments, equipment purchases and the weeks a doctor is away. Reliable forecasting, a payroll tax review and a standby facility cover most of it.
Key points
- Medicare-backed income is predictable, but the Bulk Billing Practice Incentive Program pays quarterly in arrears, so a switch to full bulk billing can open a gap
- Contractor GP arrangements can attract payroll tax, and an assessment may reach back several years, which is a lump-sum risk for the practice
- A practice's revenue follows its doctors: a resignation, long leave or a late start for a new doctor shows up in cash within weeks
- Rent, nurse and admin wages and clinical equipment are fixed, while billings depend on appointments completed
- Lenders usually value Medicare income, but they look hard at doctor retention, lease terms and the practice's compliance history
On paper, a medical practice is the sort of business a lender likes: steady demand, Medicare-backed income, and customers who do not stop needing care. And yet practice managers say the same thing over and over. The money is there on average and short at specific moments.
Those moments are rarely a surprise once you know where to look. This guide covers the main cash flow pressure points in a general or specialist practice, and which levers are worth pulling before a gap becomes urgent.
Why does a medical practice with steady income still run tight?
Because the income is steady in total and uneven in timing, while the costs are fixed.
A practice pays nurses, reception, practice managers, rent, software, indemnity-related costs, cleaning and consumables whether the day is full or half empty. Doctors may be paid or be on a percentage arrangement, which flexes with billings. The practice’s own margin sits in the difference, and a few weeks of lower billings from one doctor can shrink it noticeably.
Meanwhile three timing issues stack up:
- Different payment streams. Private billing is paid at the consultation, bulk billing is paid by Medicare after the claim, and the incentive payments may come later still.
- Quarterly and annual costs. Payroll tax, insurance, BAS and equipment servicing arrive in lumps.
- Capital items. An ultrasound, a sterilisation unit or a room fit-out costs a large amount at once and pays back slowly.
How does bulk billing change the cash pattern?
From 1 November 2025, bulk billing incentives were extended to all Medicare-eligible patients, and a new Bulk Billing Practice Incentive Program (BBPIP) added a quarterly incentive on eligible bulk billed services, shared between the practice and the doctor.
For cash flow, the key words are “quarterly” and “shared”. A practice that moves a large share of patients to bulk billing gives up some gap or private fee income now, while the incentive arrives later. The question is how many weeks of lower cash sit between the decision and the incentive payment.
A simple way to think about it:
- Estimate the weekly change in private fee income from the switch.
- Estimate the incentive payable per quarter for the practice’s share.
- Work out the cumulative gap before the first incentive arrives, then the steady state afterwards.
If the first quarter shows a deficit, it needs to be funded from a buffer or a facility. Incentive money is not in your account until it is paid, and the practice should not spend on the strength of an estimate.
Check the current program details on the Department of Health’s page, since the rules, caps and eligibility can change.
What about payroll tax and contractor doctors?
This is the biggest lump-sum risk many practices carry. Under the common arrangement, a doctor is an independent contractor who pays the practice a service fee for rooms, staff and equipment. State revenue offices have examined whether payments within those arrangements are taxable wages, and the answer has depended on the facts and state law. Several states have introduced exemptions or relief, with different conditions, so the position in Queensland, Victoria, New South Wales, South Australia and the ACT is not the same.
What this means for cash flow:
- A payroll tax assessment can look back several years, with interest and penalties, producing a large single bill.
- Practices that have received one often arrange a payment plan with the revenue office, or borrow to pay it and avoid penalties building up.
- Going forward, the compliance cost of changing arrangements is real. Practices frequently restructure agreements and may adjust service fees.
Two sensible steps: ask your accountant whether your arrangement has been reviewed against your state’s current rules, and put any estimated exposure in your forecast as a contingent item. Our paying a tax bill page covers how finance is used for tax liabilities.
Wondering if a payroll tax or incentive gap is fundable? Send us the outline and we will tell you what might fit.
What do equipment and fit-out do to the account?
Clinical equipment is an important and recurring cash demand, and it works well with finance because the asset itself provides the security. Practices commonly finance:
- Imaging, ECG, spirometry and diagnostic devices.
- Dental or procedural chairs and sterilisation units.
- Computers, telehealth setup and clinical software hardware.
- Fit-outs for additional consulting rooms.
A repayment that is covered by the new income the equipment brings is a different proposition from one that depends on existing billings. A lender will ask for evidence: how many extra appointments a room produces, and what each is worth. Our guide on finance for medical and dental equipment explains structures such as a chattel mortgage and leases.
How should a practice plan for doctor changes?
A practice’s income is its doctors’ time. When a doctor takes extended leave, leaves or is slow to ramp up, billings fall while rooms, nurses and rent continue.
Build three scenarios into your forecast:
- Base case. Current doctors, usual leave.
- One doctor out. Remove that doctor’s billings and your share of them for 12 weeks, keep all fixed costs.
- New doctor ramp-up. A newly recruited doctor typically has a slower first few months while a patient list builds.
If the “one doctor out” case drops below zero, that shortfall is the size of buffer or facility the practice should hold. A bank with a health team may be your best first call, as many offer practice overdrafts and term finance on competitive terms to established practices. If the bank’s limit or criteria do not fit, other lenders can still help, and our page on how lenders view medical practices explains what they check.
What do lenders ask for from a practice?
- Two or three years of financial statements and the latest year-to-date.
- Practice management software reports showing billings by doctor and payer type.
- Doctor agreements, including service fee terms and notice periods.
- The lease, including term and options, since premises are essential.
- Any payroll tax correspondence or assessments.
- For buy-ins, the sale agreement, valuation and your own income evidence.
An illustrative example
This is an invented example. A five-doctor practice bills about $3.6m a year. It decides to move to full bulk billing from 1 February and expects the BBPIP to add an incentive, paid quarterly. Private gap fees fall by about $11,000 a month from February. The first quarterly incentive is expected in a later quarter, and the practice share is estimated at around $26,000 a quarter in steady state, after the doctors’ half.
The practice manager’s table shows the account falling by roughly $33,000 over three months before the first incentive lands. The practice has $18,000 spare cash. Rather than waiting for the shortfall, the owner arranges a $40,000 line of credit with the practice’s bank in December, using the last two years’ statements. It is drawn to about $17,000 by April and cleared within the following two quarters.
Mistakes to avoid
- Spending an expected incentive before it is paid.
- Treating contractor agreements as settled without checking them against current state rules.
- Buying equipment out of working capital the week before a quarterly tax bill.
- Leaving a lease to expire without securing an option, since it can limit what a lender will fund.
- Forecasting only the base case.
Ready to put a safety net in place?
Healthy practices look for finance when things are calm, because that is when the numbers read best. If you can see an incentive gap, a payroll tax bill or a big equipment purchase coming, it is worth knowing your options early.
Our enquiry form takes about a minute, and it does not touch your credit file. Your details stay with us, not a long list of lenders, and a real person reads your circumstances and gives you a call. Please give accurate figures for billings, your doctors’ arrangements and the amount you need, and the first option suggested is more likely to be the right one.
Frequently asked questions
What is the Bulk Billing Practice Incentive Program?
It is a Commonwealth program, starting 1 November 2025, that pays eligible practices an additional quarterly incentive on Medicare benefits for bulk billed services, shared between the practice and the doctor. Practices need to be registered with MyMedicare. Because payment is quarterly, plan for the lag between delivering services and receiving the incentive.
Do contractor GPs create payroll tax risk?
They can. State revenue offices have taken the view that payments by a practice to contractor doctors may be taxable wages under some arrangements, and states have introduced different exemptions or rules. Get specific advice for your state and your agreement structure, and ask your accountant whether any past exposure needs provision.
How much working capital does a medical practice need?
Enough to cover fixed costs while income varies: wages, rent, equipment repayments, insurance and consumables for a few weeks. Calculate from your own figures. Practices with larger teams, owned premises or a recent switch to bulk billing generally want a larger buffer than a small private billing practice.
Can a practice borrow to buy clinical equipment?
Yes. Equipment finance is commonly used for clinical devices, imaging and fit-out items, secured over the asset itself. Lenders consider the practice's trading record, the equipment's resale value and how the new asset adds income. Banks with health teams often handle this well for established practices.
What happens to cash flow when a doctor leaves?
Billings fall quickly but fixed costs stay. Rooms sit empty until a replacement starts, which can take months with credentialing and patient transfers. Practices often forecast a scenario with one doctor fewer, and keep a facility or buffer to ride out the recruitment period.
Is buying into a practice different from running one?
Yes. Buying in involves a valuation, goodwill and often a partner's or vendor's finance, with repayments that must be covered from your share of profit. Lenders look at the practice's history and your own earnings. A separate guide on buying a business with finance covers the general steps.