Managing Operating Losses in US Healthcare Industry

January, 2018. Like hospitals, physician practices face growing cost pressures and decreased operating results, AMGA reports. In a competitive market with constantly changing standards, best practices, regulations and more, healthcare organizations need to have a large volumes of liquidity and healthy profit margins just to maintain a modern standard of service.


Operating losses per physician grew from 10% of net revenue in 2016 to 17.5% last year, according to the 2017 Medical Group Operations and Finance Survey. Total losses per physician climbed from a median of 95,138 in 2016 to $140,856 in 2017.


During the two-year period, median net professional revenue dropped from $682,735 to $681,322, despite a median increase $111,275 in gross professional revenue — from about $1.2 million to about $1.3 million.


The majority of integrated groups are small to mid-size (13 of the 15 reported) and, as expected, these group sizes also reported increasing operating losses per physician. Large groups, with more than 300 physicians, saw a decrease of operating loss, from 2016’s loss of $172,746 per physician to a loss of $35,477 per physician in 2017.

These trends are particularly true for small to mid-sized Integrated Health Systems which saw a 15% increase in operating losses from 2016 to 2017. Although larger organizations posted a significant average reduction in operating costs, it is evident that the healthcare industry is heavily subject to advantages of scale, but increasing volume alone is no longer a viable solution. A 2013 Massachusetts state study on hospitals shows large variations in efficiency when compared to size and key functions (commercial vs public payouts; teaching vs non-teaching hospitals) highlighting the volatility and sensitivity associated with operational margins for all healthcare organizations. Managing operating expenses often comes down to finding the right balance and leveraging the right resources.

Major Contributors to Diminishing Operating Margins:

  • High/Fluctuating Wages
  • Rising Overhead Costs
  • Maintaining Regulatory Compliance
  • Limited Revenue Streams
  • Inefficiency and Redundancies

“CEOs are pursuing new cost-cutting measures. Among these are developing new staffing models, shifting patients to outpatient services, and reducing administrative and supply costs.”

Manage What You Can Control

Identify your key operating strengths/weaknesses which can be improved most easily or efficiently.

Inventory/Supply Management

Communication is key. Overstocking and understocking equipment, supplies and inventory can exchaust budets or otherwise result in wasteful spending. Miscommunication between center, division or floor managers can lead to sourcing inventory from multiple vendors at lower quantities and higher costs. Bulk order negotiations yield low cost goods. It's crucial to maintain a constant and open flow of communication between key employees throughout the organization.

Lean Operations

Inhouse: Refocus employee operating procedures to improve efficiency and productivity. As recommended by the Massachussetts healthcare study, set goals to include "fewer medication errors, a decrease in health care-associated infections, less nursing time away from the bedside, faster operating room turnover, improved careteam communication about patients, and faster response time for emergency cases – not only improve patient care but also increase employee engagement, labor productivity, and operating margins."

Outsource: Overhead and high/fluctuating wages can be reduced to a fraction of the cost by leveraging the international labor market. Backoffice and administrative positions can be streamlined by healthcare BPO agencies who provide essential inhouse staff the support they need to improve productivity and efficiency. Revenue Cycle Management is a commonly outsourced business cycle that yields tremendous returns.

Cost Accounting

Inhouse: Applying cost accounting measures that are specific to each task can provide valubale insight decision makers need to maximize productivity. Time and cost per task or procedure for all personnel can be tracked and reported on a frequent basis. Accurately calculating specific costs per task as opposed to assigning costs to departments/groups of procedures is more time consuming but results in invaluable information when aiming to reduce operating losses.

Outsource: BPO's that offer RCM services can provide accuracy, speed and efficiency reports for each outsourced service. Download the example below of Real-Time Medical Coding Statistics: