Rising costs associated with inflation has added financial pressures for virtually all medical group practices despite the ongoing recovery from the COVID-19 pandemic.
A June 21, 2022, MGMA Stat poll found that 90% of medical practices reported that their costs have risen faster so far in 2022 than revenues, while only 10% said their revenues are keeping pace or ahead of rising costs. The poll had 348 applicable responses.
Staffing/labor costs were the most-frequently cited area of rising costs among practice leaders polled by MGMA, who noted that rising salaries and wages — and added expenses for temporary workers and locum tenens providers — were key contributors to the imbalance they face in their finances this year.
“Labor is up 30% from a year ago,” one medical group leader said. “That has turned our margin negative.” Several practice leaders noted that some of the largest staffing expense increases have been at lower-wage positions in the organization, such as front desk workers and medical assistants (MAs).
In some cases, physician-owners of practices may not be feeling the pinch yet but will soon.
"We budgeted for an 8% raise for everyone but are finding that to retain staff we're adding approximately another 4% after that,” one practice leader told MGMA. “Meanwhile we have insurers trying to renegotiate contracts back to 2020 CMS rates for E/M codes. We have already told the partners to expect a large pay cut when we look at draws next, meaning they'll feel it next January.”
Other common areas of higher costs or stagnant revenues noted by respondents:
- Reimbursement cuts, especially as Medicare reimbursement fails to keep pace with the cost to deliver care
- Significant increases in lab supply and drug costs
- Increases in utility costs
- Sluggish patient visit rates inhibiting productivity and revenue
- Rising malpractice premium rates.
One practice leader said it was hard to point to any area where spending is not on the rise: “Every expense you can think of is up; we readjusted our budget because of it.”
These impacts are felt especially hard in physician-owned groups. "An increase in overhead decreases revenue to the operation,” one practice leader told MGMA, “and the physicians who are already burned out [are] taking reduced pay.”
Medical practice leaders who answered “no” in the poll pointed to the following strategies as most helpful for containing costs and/or improving revenue in 2022:
- Eliminating spending on unnecessary supplies
- Closer examination of staff schedules to monitor overtime and overstaffing of locations
- Implementation of incentive opportunities with payers to boost reimbursement.
Confronting inflation
The Bureau of Labor Statistics reported earlier in June that the consumer price index rose 8.6% in May 2022, its sharpest increase since December 1981.
Rising consumer prices for housing, fuel, food and other items have added strain to healthcare workers’ personal finances, enhancing pressure on some to consider seeking higher salaries or wages to keep pace. Even before the start of 2022, a December 2021 MGMA Stat poll found that half of medical practices budgeted more than usual for workers’ cost-of-living increases heading into this year, and that the average increase budgeted for 2022 was 5%. The top responses around wage increases for some of the most-sought-after clinical positions —MAs and nurses, in particular — ranged from 15% to 20%.
However, the financial strains of the COVID-19 pandemic and stagnant reimbursement were clear from many medical practice leaders who noted larger wage increases weren’t tenable in recent months:
- Less than two-thirds (60%) of medical practices hit their revenue goals in 2021, per a Feb. 22, 2022, MGMA Stat poll, as several practice leaders pointed to staffing issues, slower reimbursement by payers and drops in elective surgeries holding back their revenues.
“All staff wages increased, supply costs increased, service costs increased, yet physician reimbursement decreased,” one practice leader told MGMA.
Medical group practices aren’t the only healthcare providers feeling the pinch: The American Hospital Association reported a variety of cost increases from 2019 through 2021 impacting bottom lines, specifically:
- Labor cost per patient increased 19%
- Average hospital drug expenses were up 28% overall and 37% per patient.
Learn more in a new MGMA data report
Following the release of the 2022 MGMA DataDive Management and Staff Compensation data set, MGMA has created a free, 20-page data report — Competing for Talent and Building Culture amid the Great Reshuffle — that highlights major benchmarks for median hourly rates for medical assistants and nursing positions, total compensation growth across management positions, and regional breakdowns for median RN, LPN and triage nurse compensation.
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