Financial Sustainability

Physician practices are facing operational and financial headwinds

February 19, 2021 10:05 pm

Jim Blake    

Cynthia Arnold

Although physician practices have seen some recent gains in performance measures, most measures remain well below 2019 levels.

A new quarterly report from Kaufman Hall offers insights on the operational and financial health of physician practices in today’s turbulent environment.a The report, released in January 2021, shows that the COVID-19 pandemic continues to create a volatile operating environment for the nation’s employed physicians. Although physician practices saw some gains in the third quarter of 2020, most performance measures remained well below 2019 levels. Many practices saw an uptick in productivity and revenues in the late summer and early fall with the easing of social distancing policies and limits on non-urgent care.

Impact on health systems from the COVID-19-driven volatility

As a result, health systems experienced a 9.5% decrease in the level of investment needed to subsidize inadequate physician revenues between July and October 2020, with the median subsidy per physician FTE dropping to $194,632 across all specialties. Year-over-year, subsidy per physician FTE was up just 0.5% in October, after climbing 14.1% year-over-year from January to July — reflecting the effects of sizable volume and revenue swings brought about by the COVID-19 crisis.

After suffering significant declines early in the pandemic, many organizations saw volumes rebound somewhat by October, enabling an increase in physician productivity. Physician work relative-value units (wRVUs) per FTE rose 4.6% from July to October. Even so, physician wRVUs per FTE were 4.9% below 2019 levels, due to fewer patient visits and lower hospital diagnostic and procedural volumes compared with pre-pandemic levels. New patient visits, which are key to growing physician practices, also declined year-over-year due to negative economic trends, competitive telehealth offerings and the continued reluctance of some patients to visit physician offices.

Physician compensation per FTE increased 1.5% from July to October, but physician compensation per wRVU was down 4.5% due to fixed physician compensation models.

Meanwhile, volume increases over the quarter contributed to an increase in revenues. Net revenue per physician FTE rose 8.1% from July to October, but this measure was down 4.5% year-over-year due to the lower productivity compared with 2019.

Expenses rose only slightly. Total direct expense per physician FTE was up less than 1% from July to October, as higher physician compensation expenses were offset by a decrease in support staff expenses.

Keys to the future success of physician practices

The future success of physician practices will rely on cash flow recovery and the pace of capital spending and investments. Managing care costs will be a critical focus, as the industry is expected to see significant shifts in care models from in-person to telehealth along with changes in payer rates. Increasing Medicaid enrollment and the Medicare fee-for-service 2% sequestration — now scheduled to start April 1, 2021 — will increase downward pressure on margins unless Congress enacts changes before then.

Practices also face mounting pressure from non-traditional competitors marketing convenient, well-packaged telehealth services to savvy consumers, thus siphoning routine care and leaving more complex patients for physician groups. To compete, physician practices will need to create permanent virtual care options that accommodate both patient preferences and clinical needs.

Leadership and infrastructure required for response to rising pressures

For hospitals and health systems, the increasing size of employed physician groups continues to strain operating margins. Subsidies required to support these practices are offset somewhat by inpatient care and procedures, but organizations will need to address physician productivity issues to offset costs. This effort requires having leadership that represents both parties to ensure physician buy-in, and robust data and analytics to foster accountability.

A sound performance improvement infrastructure and operating controls will be key to managing through 2021. Physician practices need actionable key performance indicators to support recovery efforts. They must move beyond gathering data to truly leveraging data to monitor performance and progress, identify opportunities for improvement and support informed decision-making.

Get more information on the new Physician Flash Report, which is available free of charge.


a Kaufman Hall’s Physician Flash Report features national data sampled from Axiom Comparative Analytics from Syntellis Performance Solutions, which contains data on more than 68,000 physicians and 28,000 advanced practice providers from more than 100 specialties. Data are updated into the tool monthly, and include the same actual, real-time physician productivity, compensation and operating expense data that physician groups use to track their own operations and finances.


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