Data Mine: Running on empty — The crisis of continually having to do more with less

Physician practices are in deep trouble. External forces are severely impacting practice profitability, and it is unlikely that the current economic climate will provide any relief. 

The October 2023 Data Mine article¹ described how inflation, escalating staff salary and benefits costs and supply chain problems have increased practice overhead while commercial and government payers kept payment levels static or even decreased physician reimbursement. As a result, many physicians and practice leaders are trapped in a continuous cycle of rising costs and declining payment. 

The 2022 MGMA DataDive Cost and Revenue reports national financial trends in practice performance and provider productivity documenting the dire situation medical groups are experiencing. Figure 1 illustrates the economic pressures practices are enduring that are unlikely to change. The orange line reveals the annual percentage increase in median total operating costs per full-time-equivalent (FTE) physician in physician-owned multispecialty groups with primary and specialty care for the five-year period of 2018 to 2022. 

Despite a temporary dip in 2019, costs skyrocketed during the COVID-19 pandemic, rising by 7.3% in the first year post-COVID, and an additional 7.6% in 2021-2022. Over the past five years, total operating costs per FTE physician in these practices soared by a staggering 17.0%, primarily fueled by the general rate of inflation, outpacing the national rate of 16.5% according to the U.S. Department of Labor Annual Average Consumer Price Index for All Urban Consumers, better known as the CPI-U (shown on the graph as the grey line).

While practice leaders are confronted by rising practice costs, they have an even greater challenge in payment. The blue line on the graph highlights the change in the Centers for Medicare & Medicaid Services (CMS) Medicare fee schedule conversion factor, which determines payment for Medicare and is the benchmark used by many commercial payers to establish their payment levels. As shown, Medicare incredulously paid physicians 3.9% less in 2022 than they received in 2018. Since CMS has already published the final Medicare fee schedule for 2024, practice leaders can see the future and realize that while practice costs are continuing to increase, Medicare — and probably all other payers — will pay doctors even less in the future than they do currently.