Cost-efficiency with medical group staffing

Staff salaries and benefits represent the largest single cost for medical practices, according to the MGMA DataDive 2014: Cost and Revenue Module, which shows a median annual expense of $300,395 per full-time-equivalent (FTE) physician in physician-owned multispecialty groups with primary and specialty care. Obviously managing the number and type of staff has an immediate effect on total practice expenses and could significantly improve an organization’s bottom line.

If it were only that simple.

All you need is the right people doing the right things and your problem is solved, right? Unfortunately, staffing realities are much more complex, and there is strong evidence to suggest that most practices exercise false economy in staffing. In other words, they reduce the number of staff to the point that production is constrained and overall profitability is reduced.

The MGMA 2014 Cost Survey shows us that staffing costs differ significantly by ownership (Figure 1). For example, multispecialty groups owned by hospitals or an integrated delivery system (IDS) report 62% of the total employees per FTE physician compared with their physician-owned counterparts. Some of the differences can be explained by the administrative support that is supplied by the parent system, such as marketing, payer contracting and human resources. And many health systems have consolidated financial management across inpatient, ambulatory care, ancillary and professional services, which reduces the number of accounting and business operations staff. A similar situation occurs with ancillary services when a health system gains economies of scale by centralizing imaging or clinical laboratory services outside its physician group practice.

In the front office (reception, appointment scheduling and medical records), the median number of support staff per FTE physician is similar for both ownership categories, which implies that similar functions are performed and that much of the work is the same whether it is done in a hospital- or physician-owned practice.

Perhaps most significant is the difference in clinical support (nursing) staff. The physician-owned multispecialty groups reported 28% more staff than the hospital-owned groups, which could be an indication that hospital-owned practices understaff in this area. And since nursing staff assists practice providers in their patient care services, an insufficient number of nurses could explain the differences in productivity and profitability seen in hospital-owned practices.

Examining the median number of staff in hospital-/IDS-owned and physician-owned practices provides one view of staffing, but a more in-depth assessment necessitates an examination of staffing in different practices. Figure 2 shows that 41% of the hospital-owned multispecialty groups have 3.49 or fewer FTE employees per FTE physician while only 5% of the physician-owned practices have similar staffing. More interesting is the right side of the graph, which shows that only 14% of the hospital-/IDS-owned groups had 5.5 or more FTE employees per FTE physician compared with more than half of the physician-owned groups.

Productivity and staffing levels

If the different levels of staff did not affect performance, none of this would matter. But there is strong evidence that lower levels of staffing, especially in positions that directly assist providers in patient care, constrain production. Essentially the most critical resource in a medical group is provider time, and any time a physician, nurse practitioner or physician assistant performs a task that could have been delegated to a staff member, productivity suffers.

In both the hospital-/IDS-owned and physician-owned groups, support staff costs and general operating costs increase as the ratio of employees per FTE physician increases. More importantly, increased staffing levels also increase total medical revenue, and net revenue minus expenses also increases. The effect of a higher staffing ratio is most apparent in the hospital-/IDS-owned practices, but we also see a similar pattern in physician-owned groups, which suggests that higher support staff ratios are associated with a better bottom line. Figure 1 below supports these findings.


With strong evidence that having more staff yields greater profits, why don’t more medical groups staff at a higher level to optimize productivity?

Unfortunately, it might be that it is easier to focus on short-term cost savings and not on a potential long-term opportunity to increase revenue. A strategy of “cutting until it hurts” clearly means that a practice will be understaffed, and data show that this costs a practice in the long run.

Having the right number and type of support staff is critical to a practice’s success. Equally important is what those staff members do. Successful healthcare executives describe how managing human resources is their most important responsibility. It is also their key to success.

Note:

1. Walker D, Gans D. Rightsizing: Appropriate Staffing for Your Medical Practice. Dubuque, Iowa: Kendall/Hunt Publishing Company; 2003.