Size of pediatrics group may affect its finances

Larger groups saw lower cost-to-revenue ratios than smaller ones, according to a new MGMA survey.

By Mike Norbut — Posted Feb. 14, 2005

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Large pediatric groups enjoy lower cost ratios than groups with fewer than four doctors, though all practices said costs rose at a faster rate than revenues over the last five years, says a recent survey by the Medical Group Management Assn.

Practices with fewer than four full-time equivalent physicians reported that their median operating costs soaked up 61.7% of total medical revenues, according to the "MGMA Cost Survey for Pediatric Practices: 2004 Report Based on 2003 Data."

The median cost levels for groups with between four and eight physicians was 59.7%, and nine or more physicians was 60.6%, the report said.

In 2003, multispecialty groups of all sizes reported that median operating costs were 60.3% of total medical revenues, while family practice groups reported that their median level was 57.8%, according to MGMA's latest cost survey of all practices.

The idea of larger groups being better equipped to control costs is common across most specialties, though the issue is magnified in pediatrics because of its high operating costs, said David Gans, director of practice management resources at MGMA. From vaccine storage to larger exam rooms to accommodate a sick child, parents and siblings, pediatricians work at an operational disadvantage, Gans said.

"Unlike industry, the number of workers doesn't increase production in a group practice, because the physician spends the necessary time with each patient," Gans said. "Whether you have three or 10 physicians, each doctor will see the same number of patients. Where economies can occur are with expenses and other services the group can provide."

A larger group can spread operating costs across more physicians, and the additional revenue generated can allow the practice to invest in ancillary service lines, Gans said.

Sheer size can allow for business comforts you can't seem to afford in a small practice as well. More staff, including a business manager or administrator, can help a practice in its quest to be more efficient. Nancy Babbitt, practice administrator with Roswell Pediatric Center in Alpharetta, Ga., said she has seen small practices in a local independent practice association that, despite the group rate negotiations with insurers, still struggle to keep costs down.

"The smaller groups just seem to be getting the squeeze," she said.

Roswell Pediatric, which has nine physicians, has dropped 10 administrative positions over the past year, thanks to an electronic medical record system implemented more than two years ago. As employees have left, the practice has not needed to fill the positions because of its technological advancements, Babbitt said.

Smaller groups would struggle to make such expensive investments, adding to their cost-cutting limitations, MGMA officials said.

Trimming costs is essential to survival in pediatrics, where the average practice is seeing costs rise faster than revenues. Groups reported an average revenue increase of 10.3% over the past five years, but said costs increased 12.5% over the same time period, the MGMA report said.

Major culprits in that equation are vaccines, which in most pediatric offices operate on a razor-thin -- if any -- margin. Anne B. Francis, MD, a pediatrician in Rochester, N.Y., and chair of the Section on Administration and Practice Management for the American Academy of Pediatrics, said her group's investment in vaccines is essentially a wash, although it could be a losing proposition.

"There's no margin built in to cover the cost of storage or catastrophe," said Dr. Francis, whose practice, Elmwood Pediatric Group, is made up of eight physicians in two locations. "If we have a power outage, we lose a whole refrigerator of vaccine."

While pediatricians might be saddled with certain realities, practices of all sizes can concentrate on good business practices to help increase efficiency, Gans said. Through outsourcing and concentrating on collecting everything owed to the practice, groups might be able to widen their margins to a more comfortable level, he said.

That is a continuous process, Dr. Francis said.

"We're always looking at reducing costs anywhere you can," she said. "We're trying to be more efficient with our use of staffing and with billing and collections. As a patient enters the office, we're sure to collect our co-pay."

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