February 2004 Bulletin

Survey reveals rise in practice expenses

By Steven Fisher

Every year, the Medical Group Management Association (MGMA) conducts the Cost Survey for Orthopaedic Practices. The MGMA’s 2002 Cost Survey Based on 2001 Data (with 111 responding practice) documented an expense-to-gross revenue ratio of about 45 percent. However, the MGMA’s 2003 Cost Survey Based on 2002 Data (with 135 practices responding) shows a significant increase over the previous year.

The average overhead ratio shot up to nearly 50 percent, an increase of more than 11 percent over 2002. Although statistics may vary from year to year based on a number of factors, such as which practices respond to any given survey escalation is substantive and unprecedented.

Increases were documented in nearly every expense category, including staff salaries and benefits, medical/surgical supplies and rent/occupancy. Although the survey did document an escalation in the cost of professional liability insurance, it did not reflect the huge percentage jumps that many orthopaedists have experienced in the recent past. Almost certainly, these will be reflected in this year’s MGMA survey.

The current survey revealed that many respondents were able to offset their expense increases by generating additional revenue. Because payer reimbursement did not, in general, increase in 2002 compared to 2001, doctors presumably accomplished this by working longer hours and/or offering (additional) ancillary services.

Doctors in smaller offices, particularly orthopaedists in solo practice, may not be able to pursue either of these courses of action, and a significant percent of AAOS members fall into these two categories. By contrast, they constituted just 8 percent of respondents to MGMA’s 2003 survey.

In coming years, all orthopaedists, and in particular solo practitioners and doctors practicing in smaller groups, must apply sound business principles to the management of their practices. This involves “working smarter” to increase patient volume without necessarily working longer hours. It also involves paying particular attention to practice expenses and seizing opportunities to trim them without compromising quality of patient care.
Sources of help include the AAOS Practice Management Center on the web at www.aaos.org and the Bones Society.

Steven Fisher is AAOS manager, practice management affairs. He can be reached at sfisher@aaos.org.

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