Medical groups, physician practices hit with high expenses
Costs more than offset revenue gains, with total direct expense per provider climbing 9% from the year prior, reaching more than $626,000.
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Even though high patient volume has contributed positively to revenue for medical groups and physician practices in the third quarter, consistently high expenses have been eating into margins, putting such practices in a financial pinch.
Such were the findings in Kaufman Hall's latest physician flash report. At first glance, the numbers look encouraging due to net patient revenue, which ticked up slightly from the third quarter and reached more than $389,000, thanks largely to gains among medical specialties and primary care. Revenue is also up 5% from the third quarter of last year, and 10% from the same period in 2020.
But expenses more than offset these gains, with total direct expense per provider climbing 9% from the year prior, reaching more than $626,000.
Despite higher volumes and increased productivity, investments/subsidies increased to assist physician practices, the report found. The median investment/subsidy per provider full-time equivalent (FTE) reached $227,282 in the third quarter – almost $30,000 more than a year ago.
WHAT'S THE IMPACT?
The median year-to-date operating margin index for hospitals was -0.1% in September, the ninth straight month of negative actual operating margins, findings showed.
The average patient length of stay remained steady from September, with adjusted patient days and emergency department visits both dropping 3% from August. Operating room minutes decreased 5% from last month, hurting hospital revenues. Adjusted discharges were also down 3%, with a slight increase (1%) in observation days driving the drop in discharges. In total, discharges were down 3% from August.
Hospital total expenses dropped slightly in September, down 1% from August, but up 3% from September 2021, and up 8% year-to-date.
"Heading into the final quarter of the year, hospitals and physician practices have had little reprieve during a very difficult 2022 from a financial perspective," said Erik Swanson, senior vice president of data and analytics with Kaufman Hall. "Hospitals and physician practices could climb back into the black by the end of the year, but it is looking less and less likely as months of negative margins continue to pile up."
THE LARGER TREND
Labor challenges spurred Moody's Investors Service to adopt a negative credit outlook for the healthcare sector, with a December 2021 report showing that the main factors are nursing shortages and increased labor costs, which are projected to decrease operating cash flow by between 2% and 9%, amid comparatively modest revenue gains.
The shortages, while mostly reducing the availability of nurses and other skilled staff, such as lab technicians, will also affect less skilled and entry-level positions. Other factors pushing expenses higher are supply-chain disruptions, increased drug costs, higher inflation and increased investment in cybersecurity.
ON THE RECORD
"Health systems are starting to get a clear picture of what service lines have a positive effect on their margins and which ones are weighing them down." said Matthew Bates, managing director and Physician Enterprise Service line lead with Kaufman Hall. "Without a positive margin, there is no mission. Health systems must think carefully and strategically about what areas of care they invest in for the future."
Twitter: @JELagasse
Email the writer: jeff.lagasse@himssmedia.com
