Medical Practice Costs Creep Higher

A year-to-year comparison of cost increases at both physician- and hospital-owned medical practices shows senior executives and administrators are increasingly being called on to build efficiencies.

MGMA-ACMPE (formerly the Management Group Medical Association) released on Wednesday its annual report on cost data gathered from member and non-member practices. Published since the mid-1950's, the Cost Survey for Multispecialty Practices: 2012 Report Based on 2011 Details, is a 300+ page benchmark report used by practices to measure how their spending and cost increases compare to their peers.

Overall, says Todd Evenson, director of data solutions for MGMA-ACMPE, there's been a "64% increase in total operating costs for multi-specialty practices" since 2001. In comparison, 2011 shows a modest 1.27% increase from 2010 for physician-owned practices.

In real dollars, that amounts to $528,182 in operating costs per full-time employee physician. Hospital/Integrated Delivery System (IDS)-owned organizations saw a 6.45% increase in operating costs, or $387,586. Evenson cautions against comparing the operating costs of the two models because they operate so differently.

Instead, Evenson says it's more significant to look at the single-digit increases in growth of each, saying the 2011 figures show "medical groups are laboring to bend the cost-growth curve."

"I feel like practices in this era of uncertainty are very cautious. And as a result, they're doing everything they can to control that cost curve growth and they're taking every opportunity, such as [cutting costs for] medical surgical supplies, where they may have had a large inventory of said items; now, they're keeping a just-in-time inventory of those items," said Evenson.

Going back to 2007, Evenson says per FTE physician, doctors were spending $10,853 on surgical supplies, and now that cost is up to more than $13,000 in 2011.

"Concerns over the sustainable growth rate (SGR) and diminished reimbursement are causing uncertainty within the market space and limiting potential investments," he added.

Other cost drivers to managing medical group practices include:

• Business support staff
• Clinical staff
• Information technology (IT)
• Building and occupancy rates
• Drug supply costs

Evenson says there isn't much on that list that is controllable. Demand for RNs and LPNs is the main reason clinical staff salaries keep increasing, says Evenson. "It's an area where demand is dictating growth."

Medical practices are under enormous cost pressure. They have little control over fixed costs, such as building and occupancy rates, they're subject to market pressures that dictate higher labor costs because of nursing and expertise shortages, and their doctors are looking at possible double-digit reductions in reimbursement rates because of the looming fiscal cliff lawmakers are debating now.

"It's commendable that medical practices are so diligently monitoring their costs," says Susan Turney, MD, MS, FACP, FACMPE, president and chief executive officer of MGMA-ACMPE.

"It is almost impossible, however to make informed business decisions and craft long term strategies when a disastrous cut to Medicare physician payments looms on the horizon. When costs continue to increase and practice professionals are forced to conservatively plan for their future, it hinders their ability to innovate and rapidly evolve as our industry calls for transformation."

An undercurrent to all of this is how much practices have to invest in IT.

"If we were to look at total general operating costs, which are everything with the exception of support staff costs, we can see that since 2007, these items have [gone] up roughly 7.8%.  But if we look [at] information technology [costs] since 2007, they went up by over 46%," says Evenson.

Evenson also says spending money on technology not only meets the needs of patients and the market, but it also enables practices to operate more efficiently.

Efficiency is also at the heart of another major cost driver: labor costs. RNs are in short supply, but so are senior level executives and administrators who can effectively run a medical practice. Their compensation packages are more robust because they are also in high demand.  Running a medical practice is complex, says Evenson.

"It's much different than it's ever been in the past, and as a result, medical groups are looking for the strongest professionals possible."

Evenson points to MGMA's profile of members as an example of the need for increasingly skilled workers. "In 2012, over 50% of our membership has a graduate degree (MBA, JD, MD); whereas, in 2003 only 35% did," he says.