In recent years, the landscape of medical practices in the United States has undergone significant changes, especially regarding how revenue is generated and managed. Hospital-owned practices are notably pulling ahead in financial performance compared to their physician-owned counterparts. This trend has become more pronounced in the years immediately following the COVID-19 pandemic, which has altered the operational challenges faced by these entities.
The 2023 MGMA DataDive Cost and Revenue report highlights that hospital-owned practices experienced a medical revenue increase of 1.79% from 2021 to 2022. In contrast, physician-owned practices, particularly in non-surgical specialties, saw a staggering revenue decline of 14.88% over the same period. This substantial discrepancy in financial outcomes prompts a closer look at the factors influencing revenue trends between these two types of medical practices.
One of the most pressing issues compounding the differences in revenue trends is staffing shortages. The MGMA report indicates a troubling decline in support staff within physician-owned practices, which fell from 5.08 full-time equivalents (FTE) per physician in 2019 to just 3.0 in 2022. This reduction in support staff has led to notable productivity losses, negatively impacting staff morale. As Ron Holder MHA from MGMA stated, “The lingering post-pandemic staffing shortages continue to challenge medical groups.”
The consequences of staffing shortages have rippled through the entire operational framework of these practices. Decreased staffing levels translate into fewer hands available to manage daily functions, which exacerbates the challenges of revenue generation. Practices are reporting increased days in accounts receivable (A/R) and higher claim denials, leading to missed revenue opportunities. Consequently, many physician-owned practices are dealing with a significant financial squeeze, with some reporting nearly zero net income as they operate as closed systems.
For physician-owned practices, the revenue cycle has become increasingly difficult to navigate. Higher accounts receivable days imply that payments are taking longer to process, which directly impacts cash flow. The challenge is further intensified by the staffing shortages that hinder the ability of practices to keep up with administrative tasks, leading to potential errors in coding and billing.
Hospital-owned practices, on the other hand, benefit from larger administrative teams and resources that enable them to better manage these processes. Additionally, the financial management structures of larger health systems allow for more resources to be allocated toward collections and revenue cycle optimization.
In 2022, hospital-owned practices reported an increase in subsidies of 39.7% to an average of $302,160 per FTE physician due to increased operational costs. This stark contrast highlights the resilience of larger healthcare systems as they absorb rising costs while managing revenue, a luxury not afforded to most physician-owned practices.
The trend away from private practice ownership continues to gain traction. According to the American Medical Association (AMA), the percentage of patient care physicians working in physician-owned practices fell below 50% for the first time in history, dropping to 49.1% in 2020 from 54% in 2018. This shift is influenced by several factors, including increased mergers and acquisitions, practice closures, and the employment choices of younger physicians who prefer hospital employment due to perceived job security and benefits.
As a result, in 2020, 50.2% of all patient care physicians were employees of hospitals or health systems, marking a significant increase from just 41.8% in 2012. This evolution points toward a future where a majority of physicians may be tethered to larger healthcare organizations, potentially impacting the delivery of personalized care that independent practices often provide.
The rising operational costs are a pressing concern across all medical groups, regardless of ownership. A recent MGMA Stat poll indicated that 92% of medical group leaders reported increased operating expenses in 2024 compared to the previous year. Key contributors to rising costs include salaries, medical supplies, and service agreements. The operating costs for physician-owned practices increased by 7.3% in 2021 and 7.6% in 2022, while hospital-owned counterparts faced even steeper challenges, with operating costs surging by 15.8% and 19.9% during the same timeline.
The challenge of rising costs is compounded by the static reimbursement rates many practices face. Simply put, while the cost of running a practice is escalating, the revenue generated pales in comparison, squeezing profit margins and forcing many to seek external funding or subsidies.
According to David N. Gans from MGMA, medical groups are “caught between the rock of set payments and the hard place of increased costs.”
In light of the growing challenges faced by medical practices, technology, particularly artificial intelligence (AI), offers promising solutions to streamline operations and enhance financial outcomes. The integration of AI-driven workflow automation could alleviate some staffing challenges by optimizing administrative tasks.
AI technologies can be employed to automate repetitive tasks such as:
allowing existing staff to focus on patient care rather than administrative burdens. Practical applications of AI in the healthcare environment include chatbots that provide answers to common patient questions and virtual assistants that help manage schedules or follow up on pending claims.
Moreover, AI can facilitate better revenue cycle management by pinpointing inefficiencies in billing processes and helping practices accurately code services rendered, significantly reducing claim denials. With improved accuracy in coding, practices can ensure that they receive the appropriate reimbursements and minimize the time spent on collections.
Medical practice administrators should consider investing in AI-driven solutions not only to resolve current complications caused by staffing shortages but also to stay competitive as healthcare continues to evolve toward larger hospital systems. The adaptability afforded by these technologies can break the cycle of lost revenue and high operational costs.
As the healthcare landscape in the United States continues to change, stakeholders must recognize the critical differences between hospital-owned and physician-owned practices. The revenue challenges faced by physician-owned practices reveal underlying systemic issues, including staffing shortages, rising operational costs, and evolving practice ownership dynamics.
With younger generations of physicians gravitating toward employment within hospitals or health systems, it remains to be seen how this trend will alter the traditional dynamics of healthcare delivery. The value of small, independent practices is not merely in their financial metrics but also in their contribution to personalized patient care and community health.
Stakeholders must also be mindful of the imperative to embrace technological advancements. Innovating through AI and workflow automation can be key to navigating the complexities of modern healthcare. By optimizing daily operations and addressing staffing challenges through technology, practices can work toward enhancing financial performance while continuing to prioritize patient care.
In closing, understanding these trends in medical revenue and their implications on hospital-owned versus physician-owned practices will be vital for practice administrators, owners, and IT managers navigating the current healthcare environment. Only through informed decision-making and strategic adaptations can practices position themselves to thrive amidst growing challenges and uncertainties in healthcare.
References:
Simbo is making doctors' and patients' lives better. Connect now to know more.
Schedule Demo Now© Since 2019, Simbo AI.
