Medical Group Operating Margins Improved in 2018

In terms of medical group operation margins, total profit per physician in independent practices increased, while integrated health systems lost less money per physician.

Medical group operating margins for integrated systems and independent practices improved from 2017 to 2018, according to new data from AMGA.

The association’s 2019 Medical Group Operations and Finance Survey, which used data from medical groups representing over 15,300 provider FTEs, showed that median total investment per physician in integrated systems improved 21 percent, decreasing from $243,918 in 2017 to $201,042 in 2018.

Independent practices also saw a slight improvement in total profit per physician during the period, increasing from $2,396 in 2017 to $2,510 in 2018.

The data showed that independent practices are set to break even in 2018. But overall performance indicates that medical groups are developing strategies to manage their physician enterprises, AMGA stated.

“The improvement of integrated systems is reflective of an industry-wide emphasis on improving financial performance,” Fred Horton, MHA, AMGA Consulting president, stated in a press release. “Across health care, integrated systems are feeling financially challenged, and as a result, are focusing on better management of their physician enterprises.”

Integrated systems and independent practices alike are facing a tough financial situation as the industry transitions from volume to value and patients act more like retail consumers. In fact, AMGA found last year that the operating loss per physician increased from a loss of 10 percent of net revenue in 2016 to a loss of 17.5 percent of net revenue in 2017.

Integrated systems tackled a tougher financial situation that year, seeing a 15 percent increase in the reported median operating loss per physician. Private practices, on the other hand, reported an increase in operating margin of $16,378 per physician during the period.

The survey’s findings spelled trouble for integrated systems, which are rapidly acquiring and employing physicians. Hospital acquisitions of physician practices increased by 128 percent since 2012, Avalere Health and the Physicians Advocacy Institute (PAI) recently reported.

As a result, the number of physicians employed by a hospital or health system grew by 70 percent from 2012 to 2018.

Medical groups, hospitals, and health systems are purchasing practices and employing physicians to successfully transition to value-based care, which emphasizes primary care and other office-based services, as well as to expand their service lines.

However, recent data shows that generating a return on investment on physician enterprises is a challenge.

Medical groups need to look beyond strictly financial metrics to employ a comprehensive physician enterprise management strategy, AMGA explained.

“Although investment (loss) or profit per physician is viewed as an industry standard metric, relying solely on bottom line financial results to assess performance can lead to missed opportunities for improvement,” said Rose Wagner, RN, MHS, AMGA Consulting chief operating officer.

For example, the survey found the prevalence of new operational best practices. Almost all respondents said their organization uses multiple access strategies to boost convenience for patients. As part of the strategy, 71 percent of respondents said their organization offered early or after-hours visits and 36 percent said they provide telehealth services.

To help groups, the 2019 edition of the Medical Group Operations and Finance Survey also now includes data benchmarks for the following areas:

  • Revenue cycle management, including best practice utilization, claim denials, claim lag times, and central business office staffing
  • Access information, including provider scheduling data, panel size, and access metrics
  • Clinic staffing, with role-specific levels per physician, per provider, and per 10,000 wRVUs
  • Advanced practice provider to physician ratios by specialty

The survey also provides data benchmarks for both independent and integrated systems.

“Bottom lines can be impacted by numerous factors, such as allocation methodology, ancillary assignment, etc., many of which are outside the control of medical group operations, thus making them non-actionable,” Wagner explained. “Regardless of integrated or independent model of ownership, you must focus on process orientation and individual line-item variances. Once those are understood, the hard work of improvement can begin.”