Doctors� Outgo Beating Income

November 6, 2008
Special Feature

The fact that expenses for group practices are growing faster than revenues is hardly news any more; it's a trend that's been going on for more than 10 years.

The fact that expenses for group practices are growing faster than revenues is hardly news any more; it’s a trend that’s been going on for more than 10 years. So while the difference this year as reported by the Medical Group Management Association is fairly small, the long-term outlook is grim in these hard economic times. As the annual clash over Medicare fee cuts shows, it’s hard to keep revenues from going down, much less increase them.

Operating costs for multispecialty groups jumped 6.5% this year, while revenues went up by 5.5%. Since 2001, costs for multispecialty groups have soared by 43.1%. Cutting operating expenses is the most obvious response to the problem, and many group practices have done so, but a look at a list of the major causes of the increases—cost of drugs, staff salaries, and malpractice insurance—shows expenses that are vital to a medical practice and are not easy to cut back.

Some specialties got hit with higher costs in certain areas than others. Pediatrics, for example, saw a 53% increase in the cost of drugs, compared to a jump of 17% for multispecialty groups overall. The big boost in drug costs this year brought the 3-year increase in drug costs for pediatrics to an eye-popping 132%. Hardest hit by the increases in staff costs were the already cost-squeezed primary care specialties like family practice, pediatrics, and OB/GYN. Cardiology logged the biggest jump in malpractice premiums, while orthopedic and OB/GYN groups actually reported a decrease.