Physician practices make revenue gains in 2021 but face mounting expenses, labor shortages

Physician practices nationwide ended 2021 with sizable gains in physician productivity and revenues,  but swelling expenses and labor shortages continue to pose significant operational challenges.  

Net revenue per physician full-time equivalent (FTE) increased with higher patient volumes and physician productivity, performing above pre-pandemic levels for the last three quarters of 2021. The metric rose to $695,088 in the fourth quarter, up 7.4% from the previous quarter.

Primary care had the biggest increase in net patient revenue per physician FTE at 12.9% from the third to the fourth quarter, as more patients sought care that may have been deferred during the height of the pandemic and before 2022 co-pays kicked in, according to Kaufman Hall's latest physician flash report.

But these gains were offset by ongoing operational challenges for employed physician groups also face high levels of investments and subsidies required to support practice performance.

RELATED: Doctors make revenue, productivity gains in Q3, but expenses also tick up, report finds

The median investment/subsidy per physician FTE was above late 2019 and late 2020 levels throughout 2021, rising to $263,001 for the fourth quarter, and was up 9.9% from $239,274 in the fourth quarter of 2020. The metric was up 5.9% compared to the third quarter of 2021, driven in part by a 16.3% year-over-year increase in total direct expense per physician FTE that mitigated physician revenue and productivity gains.

“Physician expenses rose in the fourth quarter across all specialty cohorts, reflecting widespread challenges. Higher volumes, coupled with labor shortages, are contributing to rising costs,” said Matthew Bates, managing director and Physician Enterprise Service Line lead with Kaufman Hall, in a statement. “Healthcare leaders must take a hard look at their direct expenses and find ways to bend the cost curve moving forward.”

Investment and subsidy levels increased across most specialties. obstetrics and gynecology had the largest increase, up 22.5% from the third quarter to the fourth quarter. Hospital-based specialties—which include hospitalists and intensivists—had a slight 1.1% decrease in per-physician investment/subsidy for the quarter.

RELATED: Physician productivity, revenues rebounding to pre-pandemic levels: report

Total direct expense per physician FTE rose to $955,281 in the fourth quarter, up 9% versus the fourth quarter of 2019 and up 16.3% versus the fourth quarter of 2020. Expenses rose even as clinical and front desk staffing levels declined. Clinical and front office support staff FTEs per 10,000 work relative value units (wRVUs) were down markedly, decreasing 16.6% from the first year of the pandemic in the fourth quarter of 2020, with staffing level decreases particularly pronounced in primary care.

At least three forces appear to be driving this shift, including increased office visits, increased wRVUs per visit (driven in part by Centers for Medicare & Medicaid Services 2020 wRVU changes), and increased staffing challenges and associated costs, according to report.

According to the report, actual paid physician compensation per FTE was up compared to the fourth quarters of 2019 and 2020, both nationally and across most specialty groups. The national median was $342,198 in the fourth quarter of 2021, up 3.3% from the third quarter. Physician compensation per wRVU increased 3.2% from the third quarter to $58.15 in the fourth quarter of 2021. Physician productivity, measured as physician wRVUs per FTE, rose 3.5% compared to the fourth quarter of 2019 and was up significantly at 21.9% compared to the last quarter of 2020.