Independent Medical Groups Increased Profit Per Provider in 2019

December 29, 2020 - Medical group financial performance generally improved before COVID-19 hit, with independent medical groups generating a profit that year, according to a new report.

The newly released 2020 Medical Group Operations and Finance Survey report from AMGA showed that the overall median profit/investment per provider in 2019 was -$22,028, and while it was a loss, it represented an improvement from -$57,426 the previous year.

But independent medical groups managed to turn a profit in 2019, with the profit per provider increasing to $12,434 in 2019 from $5,200 in 2018.

Meanwhile, the overall median loss per provider for health-system affiliated medical groups increased slightly to -$163,994 in 2019 from -$165,050 seen in 2018.

The overall median loss/investment per physician also dipped for health system-affiliated medical groups from -$225,261 in 2018 to -$278,505 in 2019, while the profit/investment for independent medical groups increased to $16,603 in 2019 from $6,296 in 2018.

In 2019, the overall median per physician was -$32,985, representing a significant improvement from -$98,840 in 2018.

The metrics help define medical group financial performance by providing a high-level assessment of all revenues and expenses for a medical group that also considers system or overhead allocations.

However, the trends do not necessarily mean medical groups affiliated with health systems are doing worse financially than independent groups, according to Fred Horton, MHA, AMGA Consulting president.

“One reason for these divergent trends is that revenue generated from ancillary services, such as scans and lab work, is reflected in the bottom line of independent medical groups, but generally does not accrue to the bottom line of groups affiliated with a system,” explained Horton.

Additionally, some expenses are exclusive to health system-affiliated medical groups, such as system office and centralized service expense allocations, which contribute significantly to the profit or loss per provider.

“Because of these nuances, we analyze compensation and production alignment, staffing ratios, and general volume-adjusted metrics to make a more apples-to-apples comparison,” Horton stated.

The median ratio of advanced practice providers (APPS) to provider, for example, was 0.58 for medical groups in 2019, with health system-affiliated groups reporting a slightly higher median of 0.59 and independent groups 0.54.

The median ratio of total clinical support/direct patient care staff per provider was 1.9 overall. Health system-affiliated systems reported a ratio of 1.88 and independent groups 2.01.

The report also found that provider compensation and benefits accounted for 61 percent of a medical group’s expenses as a percentage of overall clinical costs per physician. Staff salaries represented 21 percent and other operational expenses represented 18 percent.

Notably, the percentage of provider compensation and benefits increased from 56 percent in 2018.

“This creates a greater need for practices to be performing at optimal levels, given that the remaining percentage for staff salaries and benefits and operational expenses is shrinking,” AMGA stated.

The impact of COVID-19 could also have major implications for medical group financial performance moving forward.

Practice revenue fell by an average of 55 percent at the start of 2020 when COVID-19 hit the US. Patient volumes also declined by an average of 60 percent, previous data from AMGA revealed.

Medical groups are still recovering from such dramatic losses from the beginning of 2020, especially as the number of COVID-19 cases remains high and continued to increase in some areas.

Most medical groups and health systems anticipate recovery to take at least a year, but some are still unsure if their organizations will ever return to pre-pandemic revenue and volume levels.

With such dramatic revenue losses, several groups have already run through cash reserves.

“This pandemic has changed the expense makeup for providers, who now are funding new PPE and telehealth infrastructure costs while simultaneously dealing with significant revenue losses,” Jerry Penso, MD, MBA, president and CEO of AMGA, said earlier this year.