Drug supplies, IT expenses are fastest-growing costs for medical practices outside of staffing

The cost of delivering care has almost universally increased for medical practices again after years of inflation-driven expense growth, and pharmaceuticals and technology are leading the way among non-labor expenses.

A July 9, 2024, MGMA Stat poll finds drug supplies (41%) and information technology (26%) as the top two areas of non-labor expenses that grew for medical practices in the past year, far outpacing facility expenses (16%), administrative supplies (10%) and “other” (7%). The poll had 285 applicable responses.

Pharmacy issues

• Drug shortages: “So many drugs are on back order and out of stock,” one practice leader told MGMA. “Like Lidocaine with Epi — when you can find it, it is so much higher [in cost], but we have to have it.” The American Society of Health-System Pharmacists tallied more than 240 current drug shortages as of this writing — an issue that has lingered well beyond 2023, when more than three in four practices reported drug supply shortages. As reported by Supply Chain Dive, shortages will get “a whole lot worse before they get better,” according to U.S. Pharmacopeia’s Vimala Raghavendran, vice president of informatics.
  • Access the FDA’s drug shortage database.
• Pricing surge: The median cost of a newly marketed drug reached $222,000 in 2022 — 23% higher than the year before and more than quadruple the rate measured in 2019. In particular, many respondents noted their practices had significant increases in vaccine costs this year without commensurate reimbursement gains, which has been especially impactful for pediatric clinics. “Overall drug costs have risen significantly,” another practice leader told MGMA. “For example, Advair, Symicort, Breo, etc., are almost out of reach for Medicare patents.”
• In the news: The issues of consolidation and vertical integration of pharmacy benefit managers (PBMs), which negotiate with manufacturers and influence drug costs via prescription plan management, were detailed in a recent FTC report on its inquiry into anticompetitive business practices.

Health IT spending

• In our June 25, 2024, poll that found 92% of medical groups reporting higher operating costs this year, several practice leaders told MGMA about increasing spending around cybersecurity, as well as rising costs for licensing and fees related to their EHR(s).
• In a 2023 poll, about three medical groups in four (74%) reported health IT compliance costs increased over the previous year, largely centered on:
  • New or improved cybersecurity systems, such as firewall updates or security features on individual workstations, including multifactor authentication
  • Server upgrades
  • Increased premiums on cyberinsurance policies
  • New software systems for catching malware or viruses
  • Surging costs for remote user VPNs to cover hybrid and remote workers
  • Additional full-time staff on in-house IT teams.

Other areas of rising non-labor expenses

Facilities

• The ongoing shift of care to outpatient sites has been a key driver of medical office and ambulatory surgery center construction in the past year, according to JLL’s U.S. Medical Outpatient Building Perspective. While these builds are signs of growth, it’s impossible to miss the added overhead costs.
• JLL’s broader look at healthcare real estate points to continued reassessment of medical practices’ real estate assets and consolidation of space where possible, potentially blunting the financial impacts of rising lease rates in some markets.

Administrative supplies

• While most practices likely looked at finding savings at the height of the pandemic when revenues were nearly stopped, it might be time to explore group purchasing options to seek out savings.
  • For example, MGMA members enrolled with MGMA BestPrice save more than $11 million last year. Access the free cost savings calculator to better understand your opportunities to save.

Miscellaneous

• Moreso than in previous polls on this topic, the latest MGMA Stat poll had several respondents noting a big jump in medical supply, lab testing and lab supply costs.

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Do you have any best practices or success stories to share on this topic? Please let us know by emailing us at connection@mgma.com.