After years of big increases, practice costs drop 2.2%

Doctors' offices are trimming expenses to deal with a stubbornly sluggish economy and bracing for payment cuts.

By Victoria Stagg Elliott — Posted Oct. 3, 2011

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The cost of operating a medical practice declined an average of 2.2% in 2010, according to an annual report on multispecialty groups issued Sept. 20 by the Medical Group Management Assn.

This comes after several years of significant increases in expenses, even as payments collected by many practices declined. However, MGMA noted that further cuts by Medicaid were implemented in 2010 by states looking for ways to control budget shortfalls. That year, physicians also were under frequent threat of Medicare cuts. Although pay ended up holding steady, there are concerns that it might be cut in the future.

"Practices are monitoring expenditures closer than ever," said Todd Evenson, assistant director in MGMA's survey operations. Although the survey focused on multispecialty groups, MGMA said the number reflects all medical practices.

Operating costs for multispecialty medical practices not owned by a hospital or integrated health system grew 52.6% from 2001 to 2010, although this varied by category. By comparison, the consumer price index, the federal government's measure of inflation, increased 23%.

The 2.2% decrease in 2010 was driven primarily by cuts to a few categories. Money spent on furniture and equipment declined 23.4% from 2009 to 2010. The amount spent on drugs went down 8.5%.

The authors believe that some purchases are being deferred, or that practices may be more judicious about them. Contracts may be renegotiated, or cheaper prices are being sought from other suppliers.

"The tenor of these findings speaks to an environment of conservatism," said MGMA President and CEO William F. Jessee, MD. "In an effort to reinforce themselves against a Draconian proposed cut to Medicare payments, as well as other factors, they have worked to reduce operating expenses and renegotiate rates with vendors, supply companies and insurance carriers. This means medical practices are not spending as much money as they were last year, which isn't necessarily a good thing.

"There is only so much more practices can do to cut expenditures without inhibiting their ability to run a successful, innovative practice."

Some categories, however, went up. Expenses related to medical and surgical supplies grew by 7.4%, and the cost of support staff increased by 4.8%. Experts believe that medical offices are hiring more support staff to increase physician productivity and improve financial outlooks. The MGMA survey found that the average number of full-time equivalent support staff per physician increased from 4.2 in 2009 to 4.4 in 2010.

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Cutting costs

Multispecialty practices reduced operating expenses by an average of 2.2% in 2010, according to a Medical Group Management Assn. survey. How practice expenses changed from 2009 to 2010:

Medical and surgical supply 7.4%
Total support staff 4.8%
Furniture and equipment -23.4%
Drug supply -8.5%

Source: Cost Survey for Multispecialty Practices -- 2011 Report Based on 2010 Data, Medical Group Management Assn.

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