Data Mine: Quo vadis? 20 years of cost and revenue data help point to what’s to come

Insight Article

Benchmarking & Forecasting

Budgeting

Data Analytics & Reporting

David N. Gans MSHA, FACMPE, SENIOR FELLOW
High school Latin students will easily translate the phrase “Quo vadis?” as “Where are you going?” College English majors will recognize the expression as the title of a novel by Henryk Sienkiewicz describing the Christian persecutions at the time of Nero. Classic movie enthusiasts will identify it as the title of a 1951 “swords-and-sandals” movie starring Robert Taylor, Deborah Kerr and Peter Ustinov.

However, medical group practice leaders may think “Quo vadis?” has a different meaning. They recognize that by knowing their past performance, they have a better probability of predicting their future.

For more than 50 years, MGMA has surveyed medical groups and published information on practice revenue, expenses, profitability and staffing, now housed in the web-based benchmarking platform MGMA DataDive Cost and Revenue. Since the data collection process and data definitions are constant each year, the software easily identifies performance trends.



Figure 1 shows a 20-year trend in total medical revenue, total operating cost and revenue after operating cost per full-time-equivalent (FTE) physician in physician-owned multispecialty groups. Since multispecialty groups have primary care physicians (PCPs) and specialists, data from multispecialty practices can be considered representative of the general performance of all physician practices. Physician-owned practices are independent business entities; thus, their economic performance is attributed to internal operations and not subject to financial support or subsidies from a parent organization that may occur in hospital-owned practices.

An obvious benefit of a 20-year trend is the ability to predict what will happen in the 21st year simply by extending the trend. Of course, this assumes that the environment doesn’t change, so a “black swan event” such as COVID-19 will jeopardize a prediction for the short run, but the graph still offers important insights for predicting what will happen when normal business practices resume.

The graph shows that total medical revenue per FTE physician (the green line, indicating money) has had a steady, upward trend from 1999 to 2016 and then accelerated the past two years to $1,394,821 per FTE physician. Total operating cost per FTE physician (the red line, indicating overhead) parallels total medical revenue, showing how practice costs have increased as more complex health services are provided in the doctor’s office, additional nursing staff with increased skill levels are hired and more sophisticated ancillary services are brought in-house. Additionally, administrative costs increased as practices added business office staff to address the increasingly complex coding and insurance regulations imposed by government and commercial payers.

Fortunately for physician-owners, increases in revenue exceeded increased costs (the orange line) and total medical revenue after operating costs per FTE physician (which increased from $194,772 in 1999 to $503,494 in 2018), allowing increases in physician and nonphysician compensation, which more than kept pace with inflation.



Figure 2 shows how the changes in total medical revenue, total operating costs and total medical revenue after operating costs per FTE physician changed over time compared to increases in the U.S. Consumer Price Index (CPI), the widely used measure of inflation.

Figure 1 displays these metrics having parallel lines, whereas the intertwined lines in Figure 2 show the three metrics had somewhat similar percentages of change across 20 years. The greatest increase occurred in total operating costs per FTE physician, which had a 207% increase in 20 years, or an average increase of 10.4% per year. Total medical revenue per FTE physician increased at a lower level of 191%, or 9.5% per year; and total medical revenue after operating costs per FTE physician had the smallest increase (159%), an average increase of 7.9% per year.

These percentages contrast with a 51% change in CPI in the same period, an average increase of 2.5% per year. Medical group leaders face the challenge of an environment in which practice costs are increasing at a rate more than four times the increase in inflation.



Figure 3 shows what is driving the increase in costs in the past five years. Compare the percent of change in operating costs per FTE physician in these practices (the red bars) to the percent of change in the CPI (the blue bar). Almost every cost showed significantly greater change than the average rate of inflation (7.8% over the five years or 1.8% per year) measured by CPI.

The greatest percent of change was radiology and imaging-related expenses, which increased 74.8% over the five years as multispecialty groups added new modalities in search of greater revenue and increased patient service. Likewise, the second-greatest increase in cost was for information technology (IT), which increased 56.0% as practices invested in EHRs. Drug supplies increased almost as much (48.8%), reflecting expanded use of infusion therapies in rheumatology, oncology and urology. Total support staff cost had the greatest dollar value ($362,817 in 2018) and increased 30.1% in the past five years. The only cost that showed a decrease is professional liability insurance, which decreased 21.5%.

The 20-year trend in total medical revenue per FTE physician and total operating cost per FTE physician display significant increases in the past two years. Looking more closely at the MGMA DataDive reports shows that productivity increased substantially in 2016, with median total procedures per FTE physician increasing 14% and total RVUs per FTE physician increasing 18%, indicating physicians and nonphysician providers in these practices are working harder to stay ahead of inflation and to improve the practice’s bottom line.

Quo vadis? For these medical groups, they are continuing to improve their bottom line and stay ahead of the rate of inflation by increasing production and providing new services that increase revenue, but with increased costs. Perhaps the best response to this question is another, less-well-known Latin phrase: Ex nihilo nihil fit, used by the Roman philosopher Lucretius in On the Nature of Things. Updated for modern English as “nothing comes from nothing,” the Romans used it to indicate that hard work is always required to achieve something, which is where medical groups are today and where they will be going in the future.

Learn more

  • MGMA DataDive is the premier data benchmarking tool in healthcare. Access the industry’s largest benchmarking datasets in topics such as compensation, operations and cost and revenue. For more information on how MGMA DataDive can help your business, email sales@mgma.com or call 877.275.6462, ext. 1801.
  • MGMA Consulting provides practices with solutions to their operational issues, including physician compensation models and examining revenue cycle to improve financial performance. Learn more: Call 877.275.6462, ext. 1877, or email consulting@mgma.com.

About the Author

David N. Gans
David N. Gans MSHA, FACMPE, SENIOR FELLOW
Industry Affairs MGMA

David N. Gans, FACMPE, can be reached at dgans@mgma.com. 

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