Medical groups and physician practices continue to feel the financial pinch of higher expenses in 2022 even as patient volumes help to drive revenue growth.
Higher patient volumes in the third quarter bumped up quarterly revenues. Net patient revenue per provider full-time employee (FTE) increased slightly from the second quarter to the third quarter, reaching $389,017, driven by increases in net patient revenues in medical specialties and primary care. That's up 5% from the same period in 2021 when net patient revenue per provider FTE came in at $369,027 and up 10% from the third quarter in 2020 ($354,566), according to Kaufman Hall's latest physician flash report.
Expenses outweighed volume and revenue increases, however, with total direct expense per provider at $626,120, up slightly from the second quarter this year and up 9% from Q3 2021.
The gap between expenses and revenues translated to higher rates of investment/subsidy in physicians and other providers by health systems.
According to the Kaufman Hall report, the median investment/subsidy per provider full-time equivalent (FTE) reached $227,282 in the most recent quarter, slightly up from the second quarter and returning physician practices to a trend of increasing investments/subsidies after a temporary decrease in Q2.
Investment/subsidies remain well above where they were at this time last year, with Q3 2021 median investment/subsidies per provider FTE of $190,608.
Volumes and a corresponding increase in provider productivity could not close the gap on growing expenses. Going forward, simply increasing volume may not be the solution to the negative operating margins that it was in previous years, the report authors said.
“Heading into the final quarter of the year, hospitals and physician practices have had little reprieve during a very difficult 2022 from a financial perspective,” said Erik Swanson, a senior vice president of data and analytics with Kaufman Hall, in a statement. “Hospitals and physician practices could climb back into the black by the end of the year, but it is looking less and less likely as months of negative margins continue to pile up.”
Medical practices are contending with rising expenses increasing at a pace faster than net patient revenues during the quarter as physicians feel the pressure of inflation and a competitive labor market. Total direct expense per provider FTE rose to a new high of $626,120 for this period, up 9% year-over-year and 16% from the same period in 2020, according to the report.
Kaufman Hall's report reflects data from Syntellis Performance Solutions based on more than 200,000 providers from 100 different specialties, representing a significant increase from previous reports.