Medical practice operating costs are still rising in 2025 — here’s how to control them

Managing operating costs is as critical as delivering quality patient care for medical practice leaders. Understanding where the dollars go — whether to front-desk staff, a high-tech surgical tool, or the internet bill — is the first step in controlling expenses. Benchmarking costs against industry norms, while adjusting for specialty needs, can help identify areas of overspending and guide targeted solutions.

This is especially crucial now, as 90% of medical groups report that year-to-date operating costs are higher than at the same point in 2024, according to a June 10, 2025, MGMA Stat poll. Another 8% reported that costs have stayed about the same, while only 3% noted a decrease. These findings reflect only the slightest of improvement in the trend seen in a June 2024 MGMA poll, in which 92% of medical groups reported higher costs compared to 2023.

Where expenses are up

Medical practice leaders reported an average year-to-date operating expense increase of approximately 11.1% in 2025 compared to the same period in 2024. The most frequently cited factors driving these increased expenses included staffing costs — primarily salaries, benefits, and competitive pay adjustments — and rising costs of medical supplies, including vaccines and injectables. Additionally, respondents mentioned other significant factors like technology investments and vendor-related surcharges influenced by broader economic disruptions such as tariffs.

Where things held steady or improved

In the few organizations where expenses were lower year to date versus 2024, practice leaders attributed their financial improvements primarily to strategic staffing adjustments, such as right-sizing their teams and reducing professional and support staff expenses. Additionally, bringing billing operations in-house and leveraging technology improvements helped streamline operations and contributed significantly to overall cost reductions.

Practice leaders whose expenses remained steady year-to-date in 2025 attributed their stable financial outcomes to strategic financial management practices. Key factors included improved inventory tracking, tighter expense controls, careful budgeting, and renegotiating vendor and carrier contracts, including shifting to group purchasing organizations (GPOs). Leaders also emphasized the impact of workforce stability, avoiding contract labor costs, hiring freezes, and centralized services, ensuring expenditures closely matched revenue, though some anticipated future cost increases later in the year.

Where costs were cut

Trends in the cost of care

As the graph above illustrates, surgical specialties have done a better job of controlling total operating costs per full-time-equivalent (FTE) physician over the past decade than their counterparts in primary care and nonsurgical specialties. Total operating cost includes total support staff expenses and general operating expenses.

In 2023, physician-owned practices (excluding primary care) reported lower total expenses, largely due to leaner staffing. In contrast, primary care practices increased their staffing levels, driving up overall costs. Meanwhile, hospital-owned practices reported higher operating costs for the third year in a row. [Editor’s note: 2024 benchmarks will be available later this summer in the 2025 MGMA DataDive Financials and Operations data set.]

Looking at pre-pandemic and post-pandemic benchmarks and the Consumer Price Index, physician-owned multispecialty groups vastly outperformed their hospital- and system-owned counterparts in controlling operating costs. From 2019 and 2022 to 2023, these groups not only contained costs more effectively but also kept expense growth below the rate of inflation. In contrast, hospital- and IDS-owned practices — often part of larger health systems — continued to report higher costs, which are frequently subsidized by their parent organizations.

How to review operating costs

Medical practice operating expenses fall into several core categories, summarized in the table below. [Actual benchmarks vary by specialty and size, available within MGMA DataDive.]

As the table illustrates, labor costs dominate the expense structure for most practices. Support staff salaries and benefits alone typically account for roughly a quarter of total practice revenue. When physician and advanced practice provider (APP) compensation is included (as in hospital-owned or multispecialty groups’ financials), total labor can easily consume 50% to 60% (or more) of all operating expenditures. In early 2024, for example, labor costs accounted for about 84% of total medical group expenses for employed providers, according to Kaufman Hall’s Physician Flash Report.

Beyond labor, clinical supplies and pharmaceuticals are another significant expense. On average these costs represent around 5% to 10% of operating expenses, but the share varies dramatically by specialty.

Technology and IT expenses usually consume a smaller share of the budget — generally around 2% to 3% of revenue for outpatient groups — but these costs are essential and growing. The pandemic-driven shift to remote work and telehealth, combined with global chip shortages that raised hardware prices, led many practices to increase IT investments. These included upgrading VPNs and security for remote access, or hastening EHR upgrades and staff training).

Facility costs (rent, utilities, building maintenance) typically account for another 5% to 10% of total expenses for outpatient practice. Leased spaces are often subjected to annual rent escalators tied to inflation, and practices in fast-growing cities or hot real estate markets have seen soaring rents and energy costs hit medical offices particularly hard. Groups owning buildings have more control but incur depreciation and interest.

Facility overhead also includes utilities (electricity, heating/cooling) and maintenance contracts (cleaning services, waste disposal, etc.) also fall under facility overhead. Insurance and legal costs include malpractice liability premiums, other business insurance (general liability, property, cyber insurance), and any legal/professional fees. While often a smaller percentage of total costs (few percent), these expenses can be very significant in absolute dollars for certain specialties.

Billing and revenue cycle management (RCM) costs arise either through maintaining in-house billing/coding staff or paying an outsourced RCM service. Industry benchmarks often estimate billing/RCM costs around 5% of collections. While efficient billing systems can help reduce this figure, RCM remains a significant component of overhead.

Other overhead expenses include marketing and advertising, staff development and training (continuing education, CME allowances for providers), and depreciation of medical equipment (e.g., X-ray, MRI, endoscopy equipment) across their useful life. For example, a $100,000 ultrasound machine might be depreciated at $20,000 per year over five years, appearing as a non-cash expense on the books. While these individual items may seem minor, collectively they can add a few percentage points to a practice’s total expenses.

Looking ahead

Looking toward 2026, key drivers of rising costs persist with some moderation:

• Labor pressures remain a top concern. While salary growth might slow slightly, demand for healthcare workers continues to outpace supply. In MGMA polling from May, only 29% of medical groups reported higher staff turnover this year, suggesting a potentially less competitive labor market.
• If broader inflation remains moderate, supply costs may stabilize. Prices for certain supplies might even decline as supply chains stabilize (for instance, if generic drug production improves, some drug costs might come down). However, emerging expensive therapies and medical technologies (e.g., new biologic drugs or vaccines) could still push costs upward.
• Energy costs are a wildcard. A surge in oil/natural gas could again drive up utility and delivery costs. Barring this volatility, those expenses should be steady.
• Malpractice insurance remains a significant fixed cost, particularly for high-risk specialties. After broad premium hikes since 2022, rates may plateau or rise slightly in 2025, depending on the liability climate.
• Reimbursement and revenue side: While not a direct cost, payer reimbursement significantly influences cost pressures. So far in 2025, legislative relief for Medicare payments remains elusive, and commercial payer negotiations remain challenging. If revenue grows by only 1% to 2%, even modest increases in expenses could further compress already thin margins. To offset these pressures, some practices increasingly pursue ancillary services (e.g., imaging, pharmacy) as a way to generate additional revenue. However, these efforts often require upfront capital and may temporarily elevate operating costs, even if they pay off later.
• Capital investments and amortization: It’s unclear how many practices will resume capital investments (e.g., EHR upgrades or clinic renovations) that were deferred during the pandemic and staffing crisis. While these investments can bring long-term gains, they add amortized expenses (e.g. a $1 million investment in new equipment adds roughly $100,000 in annual depreciation). With thin margins and less-than-ideal borrowing conditions, practices will likely pursue only those projects that clearly demonstrate efficiency gains or increased patient volumes (“necessary ROI”).
• Efficiency improvements: New technologies often carry a promise of leaner operations — such as telehealth and remote patient monitoring — will likely be adopted only if they are reimbursed properly. Automation in scheduling, billing, and clinical documentation may reduce some staffing needs, though some studies say they primarily ease burnout and administrative burdens. Outsourcing logistics for supply management or clinical transcription can further trim expenses. Economies of scale through mergers or network affiliates might help moderate cost growth, though savings will take time to materialize.

Conclusion

Analysts and consultants agree:  High expenses (particularly labor) will keep pressure on margins in 2025. Practice leaders will need to pursue cost containment aggressively. The outlook suggests that operating costs will not return to pre-2020 norms. Instead, practices must adapt to a new baseline of higher expenses by improving efficiency, advocating for better reimbursement, and smartly allocating resources. The coming year will demand continued vigilance, innovation, and tough decision-making to ensure that quality care remains financially sustainable in the ambulatory setting.

Additional resources

• 2025 Medical Group Purchasing and Supply Chain Report — Insights from MGMA and MGMA BestPrice
• Podcast: Smart Savings — Reducing expenses without sacrificing care
• ACMPE Certificate: Operations Management Certificate — Earn 14 CE hours to master practice operations, project management, data analytics, IT, cybersecurity and marketing.
• ACMPE Certificate: Financial Management Certificate — Earn 10.5 CE hours and prepare yourself to confidently oversee the financial health of your organization by mastering the unique principles that set healthcare financial management apart from other industries.