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Bad Debt, Lower Volume Linked to Lower Revenue by MGMA Members

Janice Simmons, for HealthLeaders Media, October 2, 2009

A decline in patient volume plus increasing bad debt related to patients' financial challenges were cited by the Medical Group Management Association (MGMA) as possible reasons for its members' drop in revenues in 2008 for the first time in several years. Many of these medical practices responded by cutting overhead costs—but not enough to accommodate reduced revenues, MGMA reported.

Multispecialty group practices saw a 1.9% decrease in total medical revenue in 2008, according to the MGMA's "Cost Survey: 2009 Reports Based on 2008 Data." MGMA obtained data on both multispecialty groups and single specialty practices, but used multispecialty data as a proxy for overall trends.

The report noted that declining revenues on average may be linked to a decline in patient volume—indicated by a 9.9% drop in the number of procedures and an 11.3% drop in the number of patients from 2006 to 2008. Also, bad debt in multispecialty group practices from fee for service charges rose 13% during that time, which suggests that patients could have had greater difficulties paying their medical bills.

In 2008, multispecialty practices reduced their overhead expenses 1.4% by usually cutting support staff costs by 1.5%—the first decline in several years. Overall, support staff costs made up 32% of medical practice expenses. The report noted, though, that while medical groups reduced support staff costs, their total employee count remained steady—suggesting that employees may have gone without raises or bonuses, or may have had pay cuts.

For specialty practices, OB/GYN and gastroenterology practices showed decreases in total medical revenue after operating costs. However, cardiology, family practice, anesthesiology, pediatrics, orthopedic surgery, and urology groups reported increases.

The data demonstrated that "the trickle down effect that a tough economy can have on a collection of businesses that are already stressed by crushing administrative burdens," said William Jessee, MD, MGMA's president and CEO. "Even in a good economy, many of our member practices have trouble staying financially solvent, so now it's more important than ever that practices look for ways to operate as efficiently and effectively as possible."


Janice Simmons is a senior editor and Washington, DC, correspondent for HealthLeaders Media Online. She can be reached at jsimmons@healthleadersmedia.com.

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