Physician practice costs continue to outpace reimbursements

The pressure on medical practices to cope with rising operating costs is not just one of perception, but based on real, staggering numbers. In fact, the cost of operating a practice, as measured by the Medicare Economic Index (MEI), surged 27 percent from 2002 to 2012, according to a report (.pdf) from the Medicare Payment Advisory Commission (MedPac). Meanwhile, Medicare spending for physician services per beneficiary increased 72.4 percent, according to MedPac, amid a 9 percent increase in Medicare payment rates.

Concerns have been expressed that the Medicare [fee schedule] updates have been relatively flat and have not kept up with the cost of delivering services. As such, physician practices are torn in their altruistic professional desire to take care of patients and the economic reality that is more and more difficult.

While healthcare experts suspect that some of the spending increases are a result of physicians raising volume to help offset flat reimbursements, much of the spending may be clinically necessary to care for an aging population suffering from multiple and complex conditions. If physicians can do better at wellness and prevention and care coordination, they might be able to squeeze out services that aren't necessary. Further, despite hopes that the sustainable growth rate (SGR) formula will finally be repealed, the proposed raises would still trail inflation.

Note: This is one main reason why many medical practices are either selling out to hospitals right now or merging their practices with other medical practices. To me, the latter is a much better long term success strategy than the former.


Have questions? I’m here to help.