Rising Overhead, Falling Revenues

Physician's Money Digest, June15 2003, Volume 10, Issue 11

AMA News

Doctors aren't increasing revenues to match risingpractice costs, and the result is a financialsqueeze for many individual doctors and medicalgroups, according to a report in .Operating costs for multispecialty groups are upan average of 33% over the past decade, whilepractice income has only gone up by about 21%.Steeper malpractice premiums are part of the risingcost equation for many doctors, along with thetighter labor market that prevailed through muchof the 1990s, which put upward pressure on staffsalaries. Complying with new medical records rulesis also adding to the cost of processing paperwork,and often requires hiring additional employees.The cost of this staff and new, moresophisticated medical equipment adds to thegrowing debit side of the ledger.

On the income side, fee-cutting pressure frommanaged care plans has sliced into revenues, withthe average percentage of gross charges collecteddropping from 89% in 1989 to 68% in 1999. Thedrop is mainly due to discounts demanded bymanaged care plans. Some solutions doctors areexploring include forming buying groups to getbetter prices on medical and office supplies andsharing office space to cut overhead costs. Gearingup for electronic medical records and electronicclaims filing carries heavy upfront costs, but practiceconsultants maintain it pays off in the long runthrough faster payments and lower costs.