MGMA has released their annual Cost Survey, a valuable that practices can use to peg against their own situation. The survey is voluntary, so it lacks the validity that one would hope for. Used with a critical eye, the survey gives you a foundation to some of your working assumptions in managing your practice. The study was released at MGMA’s annual conference, which is wrapping up in San Diego today. The 2009 conference will be in Denver, and speaker proposals are due in two weeks, on October 31.
This crunch – rising costs and flat and declining reimbursement – creates what I have described as the disappearance of the margin of management error. No financial or business plan is a perfect predictor of the future. When developing budgets, I always include a contingency factor for cover variances overall so that the bottom line comes close to projection.
This all said: the sharp rise in personnel costs is curious – it suggests that practices are adding staff, and/or that benefits costs have jumped and that practices are absorbing the increases. The solution here is to work on improving your operating processes – you need to find ways to be more efficient with your staff time. I’ve written on this before and will do so again.
In the meantime, here is the MGMA press release. You can order the Survey from MGMA – members get a discount, participants get it for free.
SAN DIEGO, Oct. 20, 2008 — Compounding economic pressures created by declining reimbursement and crushing administrative burdens, operating costs rose faster than revenue in many medical group practices in 2007, according to the Medical Group Management Association (MGMA) Cost Survey: 2008 Reports Based on 2007 Data. MGMA data indicate that over the past decade, operating expenses have risen from 58 cents to 61 cents per dollar of revenue.
Multispecialty group practices reported a 5.5 percent increase in median total revenue; median operating costs increased by 6.5 percent. Many single-specialty practices reported a similar trend. For example, cardiology practices’ median total medical revenue decreased 0.61 percent while their operating costs rose 6.3 percent. Family practice, OB/GYN, pediatrics and orthopedic surgery groups reported like conditions.
While each medical specialty’s cost drivers are unique, some overall trends could be observed:
- Drug supply — In multispecialty groups, drug supply costs leapt 17 percent in 2007, compounding a 33 percent increase from the previous year. Drug supply costs increased dramatically for pediatric practices – 56 percent in 2007 – creating a 132 percent increase in the past three years. MGMA data indicate drug expenses drove costs among primary care specialties, in general.
- Support staff — Family practices, which derive most expenses from employees, reported a 15.8 percent increase in 2007. OB/GYN and pediatrics groups reported similar hikes in support staff costs — 17.2 percent and 10.1 percent, respectively.
- Professional liability — OB/GYN groups reported a 3 percent decrease in these costs, compounding a decline in 2006. Orthopedic surgery also posted a reduction of 7.4 percent. This trend was not consistent among all specialties, however. For example, cardiology groups reported an 8 percent increase in malpractice insurance premiums in 2007, contributing to the 132.3 percent increase they’ve experienced since 2000.
“Group practice leaders nationwide have been wringing their hands for more than a decade over the seemingly endless trajectory of costs consuming a larger portion of practice revenues,” said William F. Jessee, MD, FACMPE, president and CEO of MGMA. “With no end in sight to declines in reimbursement, rising inflation and the expanding morass of red tape practices must contend with just to do business, we believe that without intervention, practices won’t be able to cope.”