MGMA Press Room

Medical group-practice cost increases outpace revenues

Cost drivers include drugs, support staff

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.” 

This year’s Cost Survey Reports represent data submitted by practices that provided information on nearly 30,000 providers – the largest provider population of any cost survey report in the United States. The single-specialty report includes new data for radiology practices. The multispecialty report and single-specialty reports include new data on total medical revenue by type of payer.

Note: MGMA surveys depend on voluntary participation and may not be representative of the industry. Readers are urged to review the entire survey report when making conclusions regarding trends or other observations.

To request an editorial copy of the full report, please contact MGMA Public Relations.

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About MGMA

MGMA is the premier membership association for professional administrators and leaders of medical group practices. Since 1926, MGMA has delivered networking, professional education and resources, and political advocacy for medical practice management.  Today, MGMA’s 21,500 members lead 13,500 organizations nationwide in which some 270,000 physicians provide more than 40 percent of the health care services delivered in the United States.

MGMA’s mission is to continually improve the performance of medical group practice professionals and the organizations they represent. MGMA promotes the group practice model as the optimal framework for health care delivery, assisting group practices in providing efficient, safe, patient-focused and affordable care. MGMA is headquartered in Englewood, Colo., and maintains a government affairs office in Washington, D.C.