Costs rise, revenue falls
Practice Management
Costs rise, revenue falls
Latest MGMA cost survey shows shortfall
The economy is booming, right? So how come medical practices continue to feel the pinch? The attitude among physicians and administrators around the country that things are tough in the health care industry is borne out by the results of the 1998 Medical Group Management Association (MGMA) cost survey. Based on 1997 data, the results are telling, if not surprising. Among the key findings: Operating costs continue to rise, and revenue after operating costs declined for the fifth time in as many years. Other findings provide more interesting reading, particularly when figures from the 1998 survey are compared with those from the preceding year. For example:
• While total general operating costs (for things such as medical/surgical supplies, information services, furniture, and equipment) were fairly stagnant, growing only 0.7% among multispecialty practices, total operating costs increased much more — up 2.5% in 1997 over 1996.
• Employment costs are rising very quickly. Support staff costs rose a quarter between 1996 and 1997 to $132,744 per full-time physician.
• Benefit costs were kept more in check, declining 1% to $23,980 per physician in 1997.
• Physicians won’t be surprised to hear that the cost of professional liability insurance is on the rise, up 2.7% to $7,303 per physician in 1997.
Better performers?
The MGMA identified 34 practices it labeled "better-performing." They met these criteria:
• Financial support for operating costs was less than $10,000 per physician.
• Revenue after operating costs per physician exceed $190,000.
• Operating cost per nonsurgical procedure was less than $30.
For those practices, however, total operating costs rose more over the year than for the general multispecialty group population, as did cost per physician for support staff and benefits costs for employees. Liability insurance costs among the better performers jumped by more than 28% to $10,485 per physician.
Another cost figure worth looking at is the amount practices spend on marketing. Among general practices, the figure dropped nearly 1% to 1,764 in 1997. For better performing practices, there was a 3.8% increase in promotional spending to $2,068.
Both general respondents and those deemed better performers saw some improvement in their accounts receivables (A/R) between 1996 and 1997. In the general population, there was a 5% decline in the number of months that gross fee-for-service charges remained in A/R. The drop was 17.4% among better performers; fewer accounts are in A/R after 120 days for both groups.
Perhaps the most interesting figures — and the most telling about what the future holds for practices — are the numbers relating to how much business comes from capitated contracts. Among the general responses from multispecialty groups, capitation made up 13.25% of revenue in 1997, an increase of 22.5% from the pre vious year. Better performers saw a 14.2% jump in capitation over the same period, to 11.25% of revenue. Among the specialty practices, there is no relief from this trend: The percentages reflect similar changes in almost every case reported.
The MGMA Cost Survey: 1998 Report Based on 1997 Data is available from the association by calling (303) 799-1111. Cost is $200 for members, $250 for affiliates, and $300 for nonmembers.
Do you qualify as a "better performing practice?" We’re looking for better performers to feature as case studies for future issues of Practice Marketing & Management. If you want to participate, fax or e-mail Lisa Hubbell. The fax number is (425) 828-9779. The e-mail address is [email protected].
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