Increases in Operating Costs Challenge Some Specialty Medical Group Practices

ENGLEWOOD, Colo. -- Family practice medical groups, unable to fully absorb a 6.3 percent increase in operating costs and continued declines in reimbursement, reported a decline in margins (total medical revenue after operating cost) of 3.5 percent overall in 2005, according to the Medical Group Management Association (MGMA) Cost Survey: 2006 Reports Based on 2005 Data – two in-depth reports for multispecialty and single-specialty practices.

In comparison to family practice, the MGMA Cost Survey reports indicate that the financial health of group practice in 2005 varied by medical specialty. For example, OB/GYN practices reported a decline in margins of 2.0 percent, while anesthesiology groups experienced a 3.9 percent increase in margins.

“These practices can keep patching holes in the dam only so long until they become overwhelmed,” said William F. Jessee, MD, FACMPE, president and CEO of MGMA. “Despite cutting staff costs and streamlining to absorb significant increases in operating costs each year, group practices now face a 5.1 percent cut in Medicare reimbursements in 2007. Our members are charged with maintaining the financial health of their practices, but circumstances are making it increasingly difficult, despite their skills as professional practice managers and executives.”

In the multi-specialty Cost Survey Report, several cost categories seem to be responsible for a 7.6 percent overall increase in general operating cost per full-time-equivalent (FTE) physician. Building and occupancy per FTE physician cost rose 11.2 percent in 2005 to $40,878, and medical/surgical supply costs rose 11.1 percent to $9,355 per FTE physician. Information technology costs increased 10.9 percent in 2005 to $10,093 per FTE physician, suggesting that groups are purchasing new information technology systems in hopes of realizing future benefits. Support staff costs for these groups inched up to 8.6 percent overall.

Even with these increases in operating cost, multi-specialty groups boosted margins by 7.3 percent to $253,230 per FTE physician in 2005. This increase can be attributed to a rise in overall production by 5.9 percent (measured by total procedures per FTE physician).

The MGMA Cost Survey Reports examine cost and revenue indicators for 967 single-specialty and 335 multi-specialty groups, together representing more than 21,180 providers. MGMA first produced the report in 1947 and it has grown to be the most comprehensive assessment of cost information on group practice in the healthcare industry.

Source: MGMA