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Why Are Medical Groups Still Struggling with Finances, Patient Access?

Analysis  |  By Christopher Cheney  
   January 13, 2025

Rising labor costs are among the challenges at medical groups, survey finds.

Medical groups are continuing to feel the strain of internal and external pressures, including rising labor costs as well as increasing demand and access issues, according to the AMGA.

The AMGA recently released the 2024 Medical Group Operations and Finance Survey, which features data collected from more than 7,500 clinics with more than 31,000 providers.

"With a stifled reimbursement environment and continued financial pressures, medical groups are forced to double down on operations and expense management," the AMGA said in a prepared statement.

The AMGA survey includes three key findings.

First, operating expense increases outpaced revenue gains. Median investment per physician eroded for system-affiliated medical groups from $249,000 to $256,000, excluding overhead allocations.

Second, to address physician shortages and access issues, utilization of advanced practice providers (APPs) such as nurse practitioners and physician assistants has increased sharply. APP utilization has grown from 36.8% of total providers (2020 AMGA survey) to 45.9% (2024 AMGA survey).

Third, the AMGA 2024 Medical Group Compensation and Productivity Survey found provider compensation was up 5.3% from the prior year. The AMGA 2024 Medical Group Operation and Finance Survey found salary and benefits increased, while other operating expenses dropped.

"This finding indicates that the portion of the company's revenue being allocated towards compensation and benefits continues to grow (as a percentage of revenue)," the AMGA said, "while expense management in organizations is focused on management of non-salary spending."

Mark LePage, MD, MBA, FACHE, is senior vice president of medical groups and ambulatory strategy at Trinity Health. Photo courtesy of Trinity Health.

Increasing labor costs

Medical groups are experiencing higher labor costs "across the board," but physician compensation has become a major driver of increased salary expenses, says Mark LePage, MD, MBA, FACHE, senior vice president of medical groups and ambulatory strategy at Trinity Health.

"We have experienced increased labor costs on the physician side and the provider side," LePage says. "There is an inherent shortage of physicians and providers across the country."

At Trinity Health and many other health systems, special circumstances are putting upward pressure on compensation for some physician specialties, LePage explains.

"For example, we have increased the sites where we are providing anesthesia services, which has further increased demand on a limited supply of anesthesiologists," LePage says. "More and more imaging is being done throughout the healthcare enterprise, so we are experiencing shortages of radiologists in some markets."

There are several strategies to offset labor costs, according to LePage, including making sure all staff members are working at the top of their licenses.

"We want to make sure that staff are doing the things that only they can do," LePage says.

Technology is also part of the solution.

"We need to look at where we can off-load work to computers," LePage says. "We need to look at places where the electronic medical record can do more of the work for us than having people do the work."

Additionally, Trinity Health has deployed AI tools to boost the efficiency of clinicians, according to LePage. The health system has adopted DAX Copilot to decrease the documentation burden on clinicians. The ambient listening AI tool records the interaction between a clinician and a patient, then generates a clinical note for the EMR.

"It allows our physicians and other providers to spend more time with the patients," LePage says.

Expenses outpacing revenue

While expenses such as labor costs have been increasing at medical groups, revenue has been stagnant or even decreasing, according to LePage.

"We have had inflationary pressure that has impacted not only labor but also real estate and supplies," LePage says. "At the same time, when you look at the Centers for Medicare and Medicaid Services (CMS) conversion factor for professional reimbursement in healthcare, that has been decreasing year after year."

To make matters worse, commercial payers have been following CMS' lead in limiting physician reimbursement, LePage explains.

Advocacy must be part of the strategy to address the imbalance between expenses and revenue.

"First, the AMGA and others are doing a lot of advocacy work with the government about how we need to change the formula for the CMS conversion factors," LePage says. "Second, we need to work with commercial payers [to advocate] for reimbursement increases that more accurately reflect the inflationary pressures we are facing."

LePage recommends medical groups increase operational efficiencies and reduce operational expenses.

"We have to manage all of the components of our operating expenses much more closely," LePage says. "For example, there is an increasing threshold for physician productivity that we need to achieve to offset inflationary pressures."

Medical groups need to contain supply chain costs and manage real estate assets effectively to decrease operating expenses, according to LePage.

Revenue cycle is another area of focus.

"Looking at the revenue cycle, we need to make sure that we capture all of the dollars that we have actually provided in services," LePage says.

APP utilization

The increased utilization of APPs reflects significant trends in the healthcare workforce and the U.S. patient population, according to LePage.

"The healthcare needs of the population are increasing as the population ages," LePage says. "We need to incorporate APPs into the care delivery model because there are not enough physicians to provide care."

Leaders at Trinity Health believe the best model for APPs in care delivery is a team-based approach, where APPs and doctors work in cooperation as colleagues, LePage explains.

"We believe the best construct is a team construct in which you have physicians and APPs working together as part of a team," LePage says. "The skills of APPs and the skills of physicians as well as the experiences of both help to augment what we are trying to do in our care environments."

Christopher Cheney is the CMO editor at HealthLeaders.


KEY TAKEAWAYS

Physician compensation is one of the drivers of increased labor costs at medical groups, a Trinity Health executive says.

At medical groups, there is an imbalance between rising expenses and stagnant revenue.

The proportion of advanced practice providers in the total number of clinicians at medical groups has increased significantly.


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