Costs - Costs Rise Faster than Revenue in Many Medical Groups

Prelude: Increases in medical malpractice rates lower than in previous years
Prelude: You may already have read this, but I’ll pass it along anyway.. This MGMA press release explains itself. What’s interests me is that primary care physicians and specialists are both showing income drops. The good news is that malpractice premiums dropped for the third straight year.

PHILADELPHIA, Oct. 29, 2007 — Operating costs rose faster than revenue in many medical group practices in 2006, according to the Medical Group Management Association (MGMA) Cost Survey: 2007 Reports Based on 2006 Data – two in-depth reports for multispecialty and single-specialty practices. The data underscore the need for change in how physicians are reimbursed for their services.


OB/GYN groups, for example, experienced a 2.3 percent bump in median total medical revenue per full-time-equivalent (FTE) physician, but their median total operating cost per FTE physician rose 7.1 percent. Multispecialty practices fared about the same – a 7.4 percent cost increase outpaced a 1.8 percent rise in revenue.


Several specialty practices watched their revenues decline or flatten. Cardiology practices, for example, posted a 0.7 percent decrease in median total medical revenue and a 3 percent increase in total operating cost. Family practice fared about the same with a 0.65 percent decline in revenue and a 2.1 percent bump in cost. General surgery groups reported a decline in revenue of nearly 2.9 percent and a 1.2 percent increase in cost.


Among specialties with positive revenue-to-growth ratios, the gains varied. For example, orthopedic surgery practices experienced a 2.8 percent rise in median total medical revenue and a 2.3 percent increase in costs. Pediatric practices saw a 15.8 percent bump in revenue and a 10 percent rise in costs.


Shrinking margins in medical group practices lend extra urgency to the need to reverse the proposed 9.9 percent cut in Medicare reimbursement in 2008 and eventually fix the flawed Sustainable Growth Rate formula used to determine reimbursement rates, notes William F. Jessee, MD, FACMPE, president and CEO of MGMA.


“This year’s data show that the disturbing trend of operating costs rising faster than revenues continues unabated,” Jessee said. “The disparity between practices’ costs and revenues is fast approaching the breaking point.”


Contrary to previous years, medical malpractice insurance rates didn’t show the same rate of increase. The percentage change in professional-liability insurance costs for orthopedic, OB/GYN, cardiology, internal medicine and general surgery practices has declined every year for three-straight years.


“Both state-level tort reform and a reported decline in the frequency of professional liability claims may have played a role in this encouraging find,” Jessee said.


This year’s Cost Survey Reports represent data submitted by practices that provided information on more than 38,460 providers – the largest provider population of any cost survey report in the United States. Thanks to new online data-collection efforts, MGMA enjoyed a 21.6 percent increase in eligible responses to this year’s cost surveys. The single-specialty report includes new data for neurology practices, and the multispecialty report includes data on primary care practices owned by management services organizations.


Note: MGMA surveys depend on voluntary participation and may not be representative of the industry. Readers are urged to review the entire survey report when making conclusions regarding trends or other observations.


To request an editorial copy of the full report, please contact MGMA Public Relations.

For publications related to this topic, see Sailing the Seven “Cs” of Hospital Physician Relationships, The Voices of Health Reform, Innovation-Driven Health Care, And Who Shall Care for the Sick?