Costs Outpace Revenue Again in IDS Practices and MSOs

ENGLEWOOD, Colo. -- Medical group practices affiliated with or owned by hospitals or integrated delivery systems (IDS) are not immune to the cost and reimbursement pressures afflicting physician-owned practices, suggest data from a new Medical Group Management Association (MGMA) survey report.

The MGMA Cost Survey for Integrated Delivery System Practices: 2003 Report Based on 2002 Data indicates that total operating costs for IDS medical group practices per full-time-equivalent (FTE) physician increased 8.4 percent over the past year while total medical revenue increased just 4.5 percent. Management services organizations (MSOs) also reported a similar dynamic between operating costs and revenue. MGMA added MSO performance data to this edition of the report.

"We all have a pretty good handle on direct costs," says Raymond Kuntz, CMPE, administrative director of clinic operations for Altru Health Systems in Grand Forks, N.D. "The challenge is the allocation of indirect costs. Part of the challenge of being in an IDS is managing those costs that you typically wouldn't have in a physician-owned practice."

IDS and hospital-owned multi-specialty groups lost $82,392 per FTE physician in 2002 compared with $75,219 in 2001, a 9.5 percent change. Historically, hospital- and IDS-owned physician practices have seen less revenue growth than their independent counterparts because of higher facility costs, salaried support physician models and loss of ancillary revenues to their hospital, IDS or MSO owners.

Total operating costs per FTE physician grew 8.4 percent from $272,454 in 2001 to $295,417 in 2002. Total medical revenue per FTE physician grew only 4.5 percent, from $415,900 in 2001 to $434,498 in 2002.

In contrast, physician-owned practices in 2002 reported median total operating costs per FTE physician at $369,829 and total medical revenue per FTE physician at $631,571, according to MGMA survey data.

Among the factors contributing to the increase in total operating costs is the total support staff cost per physician, which grew 7.9 percent, from $147,902 in 2001 to $159,521 in 2001. Building and occupancy costs grew 13.1 percent, from $28,289 per FTE physician in 2001 to $31,985 in 2002. Professional liability insurance jumped 24.2 percent, from $5,992 per FTE physician in 2001 to $7,445 per FTE physician in 2002.

IDS physician practices did report an improvement in collections. Total accounts receivable (A/R) per FTE physician dropped to $77,045 in 2002, down 17.6 percent from $93,484 in 2001. A greater percentage of A/R shifted to 30 days or less, with 44.94 percent in 2002 up from 39.86 percent in 2001.

"Managing A/R is definitely where IDS groups have an advantage," Kuntz says. "An IDS tends to be able to commit more resources to areas such as A/R. We've seen some significant improvement in our days in A/R."

The MSO section of the report suggests that practices participating with MSOs saw similar figures to their IDS brethren in 2002:

·Total operating costs per FTE physician was $281,172;

·Total medical revenue per FTE physician was $417,486;

·Total A/R per FTE physician was $78,220; and

·Total loss per FTE physician was $58,040.

The MGMA, founded in 1926, is the nation's principal voice for medical group practice. MGMA's 19,000 members manage and lead more than 11,500 organizations in which more than 237,000 physicians practice. MGMA's core purpose is to improve the effectiveness of medical group practices and the knowledge and skills of the individuals who manage and lead them.

Source: MGMA