MGMA: Costs Up, Revenue Flat for Integrated Delivery Systems

ENGLEWOOD, Colo. -- Trends of continuing operating cost increases and stagnant revenue seem to continue for integrated delivery systems (IDSs), according to the recent Medical Group Management Association (MGMA)’s “Cost Survey for Integrated Delivery System Practices: 2004 Report Based on 2003 Data.”

Total operating costs per full-time-equivalent (FTE) physician increased 4.9 percent (median) in 2003 compared with 8.4 percent in 2002. Total medical revenue per FTE physician remained about the same, decreasing 0.2 percent in 2003 compared with the 4.5 percent increase in 2002.

In 2003, key median financial figures for multi-specialty IDS practices were:

-Net loss, excluding financial support, per FTE physician at $70,060 (improving 15 percent from $82,392 in 2002);
- Total financial support to IDS medical group practices per FTE physician at $62,413 (up 31 percent, from $47,646 in 2002);
- Total operating cost per FTE physician at $309,762 (up 4.9 percent from $295,417 in 2002);
- Total medical revenue per FTE physician at $433,780 (unchanged from $434,498 in 2002); and
- Total accounts receivable per FTE physician at $82,776 (up 7.4 percent from $77,045 in 2002).

In contrast, physician-owned practices in 2003 reported median total operating costs per FTE physician at $378,896, median total medical revenue per FTE physician at $633,096, and total accounts receivable per FTE physician at $127,291, according to MGMA survey data.

“Accounting in IDSs may not include ancillary revenue or cost, which partly explains why their revenues do not look as robust as in the physician-owned practices,” said  Michael L. Nochomovitz, MD, president and chief medical officer of University Primary and Specialty Care Practices of the University Hospitals Health System in Cleveland, and a member of the MGMA board of directors.

Traditional hospital- and IDS-owned physician practices have seen more level revenue trends than their independent counterparts because some IDS groups use salary models and some lose their ancillary revenues to their hospital, IDS or management services organization owners.

Like physician-owned practices, information technology and professional liability are two culprits in the increase in total operating costs for multi-specialty IDS practices. Between 2002 and 2003, the median cost of information technology per FTE physician in a multi-specialty IDS practice increased 15.4 percent, from $5,952 to $6,867; for professional liability, the increase was 18.9 percent, from $7,445 to $8,855.

“Arrangements like self-insurance and captives are common in IDSs, which help blunt the cost of professional liability to practices. It’s one of the features that make being a part of an IDS attractive to practices,” Nochomovitz says. “The same is true with information technology. The economies of scale certainly help with information technology costs, which are clearly seen as a major professional benefit of aligning with an IDS.”

Source: MGMA