Costs rise faster than revenue in physician practices, survey finds

Operating costs rose faster than revenue in many medical group practices in 2006, according to two surveys released at the 2007 Annual Conference of the Medical Group Management Association.

MGMA distributed the results of Cost Survey: 2007 Reports Based on 2006 Data -- two in-depth reports for multispecialty and single-specialty practices.

MGMA President and CEO William Jessee, MD, said that the data emphasize the need for change in how physicians are reimbursed for their services.

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"This year's data show that the disturbing trend of operating costs rising faster than revenues continues unabated," Jessee said. "The disparity between practices' costs and revenues is fast approaching the breaking point."

Several specialty practices saw their revenues decline or flatten. Cardiology practices, for example, posted a 0.7 percent decrease in median total medical revenue and a 3 percent increase in total operating cost. Family practice fared about the same with a 0.65 percent decline in revenue and a 2.1 percent bump in cost. General surgery groups reported a decline in revenue of nearly 2.9 percent and a 1.2 percent increase in cost.

OB/GYN groups experienced a 2.3 percent increase in median total medical revenue per full-time-equivalent (FTE) physician, but their median total operating cost per FTE physician rose 7.1 percent. Multispecialty practices fared about the same -- a 7.4 percent cost increase outpaced a 1.8 percent rise in revenue.

Among specialties with positive revenue-to-growth ratios, the gains varied. For example, orthopedic surgery practices experienced a 2.8 percent rise in median total medical revenue and a 2.3 percent increase in costs. Pediatric practices saw a 15.8 percent bump in revenue and a 10 percent rise in costs.

Shrinking margins in medical group practices lend extra urgency to the need to reverse the proposed 9.9 percent cut in Medicare reimbursement in 2008 and eventually fix the flawed Sustainable Growth Rate formula used to determine reimbursement rates, said Jessee.

Medical malpractice insurance rates didn't show the same rate of increase. The percentage change in professional-liability insurance costs for orthopedic, OB/GYN, cardiology, internal medicine and general surgery practices has declined every year for three-straight years.

"Both state-level tort reform and a reported decline in the frequency of professional liability claims may have played a role in this encouraging find," Jessee said.

The MGMA Cost Survey Reports represent data submitted by practices that provided information on more than 38,460 providers, which MGMA says is the largest provider population of any cost survey report in the United States. There was a 21.6 percent increase in eligible responses to the current cost surveys, which MGMA attributes to new online data-collection efforts.

The single-specialty report includes new data for neurology practices, and the multispecialty report includes data on primary care practices owned by management services organizations.