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    David N. Gans
    David N. Gans, MSHA, FACMPE

    Physician practices are in deep trouble. External forces are severely impacting practice profitability, and it is unlikely that the current economic climate will provide any relief. 

    The October 2023 Data Mine article1 described how inflation, escalating staff salary and benefits costs and supply chain problems have increased practice overhead while commercial and government payers kept payment levels static or even decreased physician reimbursement. As a result, many physicians and practice leaders are trapped in a continuous cycle of rising costs and declining payment. 

    Figure 1. Percent change in the CMS physician fee schedule conversion factor, median total operating cost per FTE physician, and the annual average CPI-U

    The 2022 MGMA DataDive Cost and Revenue reports national financial trends in practice performance and provider productivity documenting the dire situation medical groups are experiencing. Figure 1 illustrates the economic pressures practices are enduring that are unlikely to change. The orange line reveals the annual percentage increase in median total operating costs per full-time-equivalent (FTE) physician in physician-owned multispecialty groups with primary and specialty care for the five-year period of 2018 to 2022. 

    Despite a temporary dip in 2019, costs skyrocketed during the COVID-19 pandemic, rising by 7.3% in the first year post-COVID, and an additional 7.6% in 2021-2022. Over the past five years, total operating costs per FTE physician in these practices soared by a staggering 17.0%, primarily fueled by the general rate of inflation, outpacing the national rate of 16.5% according to the U.S. Department of Labor Annual Average Consumer Price Index for All Urban Consumers, better known as the CPI-U (shown on the graph as the grey line).

    While practice leaders are confronted by rising practice costs, they have an even greater challenge in payment. The blue line on the graph highlights the change in the Centers for Medicare & Medicaid Services (CMS) Medicare fee schedule conversion factor, which determines payment for Medicare and is the benchmark used by many commercial payers to establish their payment levels. As shown, Medicare incredulously paid physicians 3.9% less in 2022 than they received in 2018. Since CMS has already published the final Medicare fee schedule for 2024, practice leaders can see the future and realize that while practice costs are continuing to increase, Medicare — and probably all other payers — will pay doctors even less in the future than they do currently.

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    David N. Gans

    Written By

    David N. Gans, MSHA, FACMPE

    David Gans, MSHA, FACMPE, is a national authority on medical practice operations and health systems for the Medical Group Management Association (MGMA), the national association for medical practice leaders. He is an educational speaker, authors a regular Data Mine column in MGMA Connection magazine and is a resource on all areas of medical group practice management for association members. Mr. Gans retired from the United States Army Reserve in the grade of Colonel, is a Certified Medical Practice Executive and a Fellow in the American College of Medical Practice Executives.

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