Medical Group Practices Work to Mitigate Increases in Operating Costs

ENGLEWOOD, Colo. -- Medical group practices are attempting to use cost containment measures to offset ongoing increases in their operating costs, as reported in the Medical Group Management Association (MGMA) Cost Survey: 2004 Report Based on 2003 Data. The report indicates that as overall costs continue to rise, especially in primary care, practices cut back in key operating areas, including support staff.

 Pediatric practices reported a reduction in total operating cost of 2.39 percent, which helped offset a decline in total medical revenue of 4.29 percent. Family medicine practices reported similar outcomes. These groups also likely focused on staffing as a key area to help steady costs, reporting slight decreases in total full-time-equivalent (FTE) support staff and flat cost levels. 

 “What the MGMA survey does not show is whether the groups are doing without important resources, or whether they actually increased efficiency,” said Daniel P. Stech, MBA, CMPE, director, MGMA Survey Operations. Total medical revenue after operating cost for family medicine group practices was only 2.21 percent greater than in 2002.

“Unfortunately, though our income stays relatively static, our operating costs increase and our reimbursements decrease. We must do something in order to remain afloat financially,” said Scott Tinkham, Lincoln, Neb., an MGMA member with more than 14 years of experience in administration for primary care practices.

In multi-specialty group practices, support staff costs generally held flat, but the number of FTE support staff positions decreased in 2003. Multi-specialty groups further cut costs by reducing housekeeping, maintenance and security expenses by 13.67 percent and lowering spending on registered nurses by 3.84 percent. The MGMA survey report also found that management fees paid to management services organizations (MSOs) went up $9,000 per FTE physician in 2003, suggesting that practices are outsourcing some functions as they cut staffing levels.

 In spite of these measures, multi-specialty groups reported a 3.18 percent increase in operating cost per FTE physician in 2003 coupled with only a 2.96 percent increase in total medical revenue, continuing a trend of operating costs outpacing revenue growth.

 Among specialty groups, orthopedic surgeons reported the greatest increase in operating cost in 2003, up 7.28 percent. Cardiology groups also experienced a notable operating cost increase of 5.99 percent. An array of single-specialty group types reported lower staffing levels in 2003, suggesting a trend.

MGMA’s Cost Survey Report indicates noteworthy increases in medical liability premiums from 2003 to 2004. Multi-specialty groups reported a 22.73 percent increase in professional liability cost. Cardiologists, hard hit by past premium hikes, reported a 17 percent increase in professional liability cost in 2003, matching the rise recorded in the previous period. Orthopedic surgeons experienced increases of 15.73 percent. MGMA data are national aggregates and do not reflect the greater increases experienced in many states.

 “The future looks bleak for primary care medical group practices, as well as for several specialties most affected by liability premium hikes and decreasing margins,” said William F. Jessee, MD, FACMPE, president and CEO, MGMA. “This economic trajectory is unsustainable and steps must be taken to help these practices meet the burden of these continually increasing costs.”

Source: MGMA

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