Report: Costs rise faster than revenue in many medical practices

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Operating costs rose faster than revenue in many medical group practices in 2006, according to Cost Survey: 2007 Reports Based on 2006 Data – two reports from the Medical Group Management Association (MGMA) for multi-specialty and single-specialty practices.

The data reinforces the need for change in how physicians are reimbursed for their services, according to the Englewood, Colo.-based MGMA. Data was submitted by practices that provided information on more than 38,460 providers, the company said.

“This year’s data show that the disturbing trend of operating costs rising faster than revenues continues unabated,” William Jessee, MD, president and CEO of MGMA, said. “The disparity between practices’ costs and revenues is fast approaching the breaking point.”

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

The report found that several specialty practices watched their revenues dip or even out, such as cardiology practices, which posted a 0.7 percent decrease in median total medical revenue and a 3 percent increase in total operating cost. Family practice reported 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.

Among specialty practices with positive revenue growth, the gains varied, according to MGMA. For example, orthopedic surgery practices experienced a 2.8 percent rise in median total medical revenue and a 2.3 percent increase in costs while 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, Jessee said.

MGMA said that contrary to previous years, medical malpractice insurance rates did not 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 for the past three consecutive years.