For medical practices, increase in patient volumes, revenue not enough to outweigh the growing cost of care

Medical practices remained busy in the second quarter of this year as providers worked hard to meet higher patient demand. 

But higher volumes contributed to bigger investments and subsidies to support physician practices. This also led to record-high expenses as practices contend with inflation and a tight labor market, according to Kaufman Hall's latest physician flash report.

Higher patient volumes bumped up quarterly revenues. Net patient revenue per provider full-time employee (FTE) rose 5.6% from the first quarter of 2022 to $388,856 in the second quarter, up significantly from Q2 2020 (38%), but just slightly from Q2 2021 (1%).

Increased provider productivity, particularly in primary care and surgical specialties, led to a 3.1% increase in net patient revenue per provider Work Relative Value Unit (wRVU) from the first to the second quarter of this year.

At the same time, net patient revenue per provider wRVU remains lower than a year ago. These numbers are concerning as expenses are clearly growing faster than reimbursement on a wRVU basis, the report authors said. 

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.  

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 $619,682 for this period, up 2.2% quarter-over-quarter and 7% year-over-year, according to the report.

Physician practices continue to feel the effects of nationwide labor shortages. When adjusted for productivity, staffing levels continue to decline quarter-over-quarter, with support staff FTEs per 10,000 wRVUs down 4.8% from the first quarter of 2022 as open roles are going unfulfilled.

Operating costs, largely driven by labor expenses, continue to rise and have reached their highest level in the last six quarters.

“Given the trends in the data, physician practices need to focus on efficiency in the second half of 2022,” Matthew Bates, managing director and physician enterprise service line lead with Kaufman Hall, said in a press release. “Amid historically high expenses, shifting some services away from physicians to advanced practice providers like nurse practitioners or physician assistants could help rein in the costs of treating an increased patient load while taking some of the weight off of the shoulders of physicians.” 

For physician practices, the median investment/subsidy per full-time provider continues to be materially higher than a year ago but showed a slight decrease in the second quarter from the first quarter of the year.

Surgical specialty investment decreased the most quarter-over-quarter, dropping to $364,089 in Q2 from $417,276 in the first quarter. Primary care and hospital-based specialties also saw drops.

Providers’ salaries have not risen at nearly the same pace as their productivity.

While compensation is still higher year over year, Q2 showed a marked decrease from Q1. Compensation per FTE provider decreased slightly to $279,985 from Q1 levels of $288,491.  All cohorts — primary care, surgical specialties, hospital-based and medical specialties— experienced decreases in this category.

Similarly, while provider compensation dropped in physician practices, expenses continued to escalate with increased patient demand, inflation, and a competitive labor market for support staff leading to a new high for total direct expense per provider FTE in the second quarter of $619,682—up 7% from a year ago and 12% from two years ago.
Compensation per physician FTE also shrank in Q2 to $343,257 from Q1 levels of $358,239.