Decrease of service volumes during the pandemic and signs of rebound are driving changes in physician practice finances.
The coronavirus pandemic had a tumultuous impact on physician practices in 2020, but there are signs of recovery in 2021, according to the April Physician Flash Report from Kaufman Hall & Associates LLC.
Physician practices experienced reduced service volumes in 2020 as patients reacted to lockdowns and shunned in-person visits due to fears of coronavirus infection in healthcare settings. The reduced in-person visits were partially offset by increased utilization of telemedicine.
The April Physician Flash Report includes three key data points.
1. Investment per physician
In 2020, there was a 6.8% annual increase in median investment/subsidy per physician full-time equivalent (FTE) compared to 2019, according to the report.
A co-author of the Physician Flash Report explained the drivers of the increase in investment per physician FTE to HealthLeaders. "We saw a lot of health systems holding physician compensation whole during the pandemic—that was a deliberate choice to hold physicians harmless for changes in the market. So, overall, with a reduction in utilization and revenue, and constant compensation for physicians, the net impact was that the investment per physician increased," said Cynthia Arnold, MBA, BA, a senior vice president at Kaufman Hall.
Health systems and physician practices will have to address investment per physician, she said. "The investment per physician numbers have increased so much that it is impossible to ignore them going forward. For us to deal with the economic pressures of this increased subsidy, health systems are going to need to pull in their physician groups and work more closely with physician group leadership."
2. Net revenue per physician
Net revenue per physician FTE declined slightly from Q3 to Q4 2020 after hitting a low in Q2 of 2020, according to the report.
The decline in net revenue per physician FTE could be a negative trend this year, Arnold said. "We do not think this bodes well for 2021."
The decline in revenue is going to put pressure on physician practices to cut costs, she said. "There is going to be more pressure for automation. At the front desk, we are going to see practices using bots to take care of repetitive tasks. Automation to reduce administrative costs will happen relatively quickly. It will be harder to replace clinical providers such as nurses and medical assistants, but all of this is going to be up for consideration as we move forward."
3. Total direct expense per physician
Total direct expense per physician FTE fell 4.9% from 2019 to 2020, according to the report.
Reductions in front-office staff during the pandemic were a primary driver of the decrease in total direct expense per physician FTE, Arnold said.
"This is an important workforce question. At most health systems, the entry level for lower-income individuals is at physician practices. So, getting a job at the front desk gets you into a health system and let's you apply for other jobs. But we are not seeing the availability of that workforce, and they are not coming back very quickly," she said.
A 0.9% increase in total direct expense per physician FTE from Q3 to Q4 in 2020 reflects a rise in patient visit volumes at the end of last year, Erik Swanson, MPH, MS, BS, a senior vice president at Kaufman Hall, told HealthLeaders.
"As volumes return, you see some of the support staff starting to come back to work. We certainly expect total direct expense per physician FTE to increase as the volumes increase. It is going to be critical for organizations to monitor these types of trends on a more real-time basis, so that they can potentially adjust what those rates of return of expense will be over time," he said.
Forecasting the future
Last year was transformational for physician practices, which face a new operational and financial landscape, Arnold said.
"We are not returning to normal; we are moving to a new normal. We are going to need to be much more tuned into our patients and recognize that they are consumers. Our patients need to have choices. We are going to need to reconfigure our physician networks. Resizing the employed physician groups will be a big part of the change going forward, but we will also have to align physician leadership so that it can be much more helpful in understanding how the work gets done," she said.
The Physician Flash Report provides essential insights into physician practice economics, Swanson said.
"Number One, it informs the economic equation at play for physician groups and what level of investment is ultimately going to be acceptable to organizations. In addition, it informs investment and what you are getting for it. In this report, with the decreases in the patient volumes, some of those decreased volumes may not be returning because consumers have different choices. Organizations need to be thinking about how to reconfigure, rethink, and innovate," he said.
Related: AMA Coronavirus Survey: Physician Practice Revenue Down 32%
Christopher Cheney is the CMO editor at HealthLeaders.
KEY TAKEAWAYS
Last year, reductions in utilization and revenue combined with steady physician compensation boosted investment per physician, a new report from Kaufman Hall says.
A decrease in net revenue per physician last year does not bode well for physician practices this year, the report says.
An uptick in total direct expense per physician in the fourth quarter of 2020 reflects a rebound in service volumes, the report says.