In recent years, the medical practice landscape in the United States has seen considerable shifts, particularly in how revenue is generated and managed. Hospital-owned practices have notably outperformed their physician-owned counterparts financially. This trend has become even more evident in the period following the COVID-19 pandemic, which has introduced new operational challenges for these entities.
According to the 2023 MGMA DataDive Cost and Revenue report, hospital-owned practices enjoyed a medical revenue increase of 1.79% between 2021 and 2022. In stark contrast, physician-owned practices—especially those in non-surgical specialties—experienced a dramatic revenue drop of 14.88% during the same timeframe. This glaring difference in financial performance raises important questions about the factors influencing revenue discrepancies between these two categories of medical practices.
One of the key issues amplifying the revenue gap is staffing shortages. The MGMA report highlights a concerning decline in support staff in physician-owned practices, which decreased from 5.08 full-time equivalents (FTE) per physician in 2019 to just 3.0 in 2022. This reduction has led to significant productivity declines and lower staff morale. Ron Holder MHA from MGMA remarked, “The lingering post-pandemic staffing shortages continue to challenge medical groups.”
The effects of these staffing shortages ripple through the entire operation of these practices. With fewer staff members to manage day-to-day business, revenue generation becomes even more challenging. Many practices are witnessing increased days in accounts receivable (A/R) and higher claim denials, which lead to missed revenue opportunities. As a result, numerous physician-owned practices are feeling the financial pinch, with some reporting nearly zero net income while operating as closed systems.
For physician-owned practices, the revenue cycle is becoming increasingly difficult to manage. Longer accounts receivable days mean that payments are taking more time to process, directly affecting cash flow. This challenge is exacerbated by staffing shortages that make it hard for practices to keep up with administrative tasks, increasing the likelihood of errors in coding and billing.
In contrast, hospital-owned practices benefit from larger administrative teams and resources, which help them manage these processes more effectively. Additionally, the robust financial management frameworks of larger health systems allow for better resources to be allocated to collections and revenue cycle optimization.
In 2022, hospital-owned practices saw a rise in subsidies of 39.7%, averaging $302,160 per FTE physician, due to escalating operational costs. This significant difference illustrates the resilience of larger healthcare systems as they absorb rising costs while managing revenue—a luxury that most physician-owned practices do not have.
The movement away from private practice ownership is gaining momentum. Data from the American Medical Association (AMA) shows that, for the first time in history, the percentage of patient care physicians in physician-owned practices fell below 50%, declining to 49.1% in 2020 from 54% in 2018. This shift is influenced by various factors, including increased mergers and acquisitions, practice closures, and the employment preferences of younger physicians who often favor hospital roles for their perceived job security and benefits.
As a result, in 2020, 50.2% of all patient care physicians were hospital or health system employees, marking a significant rise from 41.8% in 2012. This trend suggests that an increasing number of physicians may find themselves affiliated with larger healthcare organizations, which could impact the personalized care typically offered by independent practices.
Rising operational costs are a widespread concern for medical groups, irrespective of ownership type. A recent MGMA Stat poll revealed that 92% of medical group leaders noted an increase in operating expenses in 2024 compared to the previous year. Key drivers of these rising costs include salaries, medical supplies, and service agreements. Operating costs for physician-owned practices rose by 7.3% in 2021 and 7.6% in 2022, while hospital-owned practices faced even steeper increases of 15.8% and 19.9% in the same periods.
The challenge of escalating costs is compounded by the stagnant reimbursement rates that many practices contend with. In simple terms, as the costs of operating a practice rise, the revenue generated does not keep pace, squeezing profit margins and forcing many to seek external funding or subsidies.
As David N. Gans from MGMA succinctly put it, medical groups are “caught between the rock of set payments and the hard place of increased costs.”
Given the escalating challenges facing medical practices, technology—particularly artificial intelligence (AI)—emerges as a valuable solution for streamlining operations and improving financial results. Integrating AI-driven workflow automation can alleviate some staffing burdens by optimizing administrative tasks.
AI technologies can automate repetitive tasks like:
By doing so, existing team members can concentrate on patient care rather than getting bogged down with administrative duties. Practical AI applications in healthcare include chatbots that address common patient inquiries and virtual assistants that help manage schedules or follow up on outstanding claims.
Furthermore, AI can enhance revenue cycle management by identifying inefficiencies in billing processes and aiding practices in accurately coding services rendered—significantly reducing claim denials. With improved coding accuracy, practices can ensure proper reimbursements and minimize the time spent on collections.
Medical practice administrators should consider investing in AI-driven solutions not only to tackle current staffing challenges but also to stay competitive as the healthcare landscape shifts toward larger hospital systems. The adaptability offered by these technologies can help reverse the cycle of lost revenue and escalating operational costs.
As the healthcare landscape in the United States continues to evolve, stakeholders must recognize the fundamental differences between hospital-owned and physician-owned practices. The revenue challenges experienced by physician-owned practices reflect deeper systemic issues, including staffing shortages, rising operational expenses, and changing dynamics related to practice ownership.
With younger generations of physicians increasingly opting for employment in hospitals or health systems, the impact of this trend on traditional healthcare delivery dynamics remains to be seen. The value of small, independent practices goes beyond mere financial metrics; they play a vital role in delivering personalized patient care and bolstering community health.
Stakeholders must remain vigilant regarding the need to adopt technological advancements. Innovations such as AI and workflow automation could prove crucial in addressing modern healthcare complexities. By optimizing daily operations and confronting staffing challenges with technology, practices can work toward improving their financial performance while continuing to prioritize the quality of patient care.
In conclusion, understanding the trends in medical revenue and their implications for hospital-owned versus physician-owned practices will be vital for administrators, owners, and IT managers navigating today’s healthcare landscape. Through informed decision-making and strategic adaptations, practices can position themselves to flourish amidst the growing challenges and uncertainties in the healthcare sector.
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