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Is inflation affecting independent practice finances?


According to economic experts, the inflation rate in the US is approaching 9%. What does this mean for consumers and for healthcare professionals? How does inflation affect the finances of independent practices?

Quite simply, inflation measures how much more expensive a set of goods and services has become over a year’s time, or some other specific period of time. In the US, the cost of most goods and services has been rising steadily over the past year. The increased costs include those involved in healthcare that impact both patients and independent physicians.

One of the biggest areas where inflation is affecting independent practice finances is in the reimbursement rate from Medicare, Medicaid, and private insurance, as it relates to the actual costs of the services provided. A recent article by Dr. Simon Murray, a self-proclaimed “small-town country doctor,” points out that “the number of patients with private insurance is decreasing” while “more than 50% of patients are covered by Medicare, Medicaid, or private pay.”

As those with private plans decline in numbers, Dr. Murray points out that “private companies exert more control over physicians by limiting networks and forcing lower fees.” The inflation effects felt by independent practices include those lower fees that are also felt as the population is aging and healthcare spending is increasing for hospitals, medications, and rehabilitation.

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An InvestingDoc blog post explains the inflation situation for independent practices with examples of certain scenarios. Essentially, the physician will “spend more money on items you need to operate your practice and effectively make less money in medicine with inflation.” Giving the example of 7% inflation from 2021, with an assumption that the inflation rate continues for two more years, the provider who secures a 3-year contract with an insurance carrier may see effective income of over 22.5% less over the term of the contract.

At the same time, the independent practice will be paying more for goods related to caring for patients, which means significantly less spending power. The InvestingDoc example follows a hypothetical practice that makes $100,000 each month in gross income:

  • Overhead is often around 50% for most clinics in today’s market. So, $50,000 of that goes to overhead.
  • With the above example, the cost of goods going up 22.5% means that the $50,000 now costs you $61,250.
  • Your Net Profit is now: ($100,000 – $61,250) or $38,750 per month. Remember that your dollar is worth 22.5% less than it was 3 years ago, making the effective net pay about $30,000 in 3 years ago money.
  •  Your net effective drop in pay is about 40%!

There are many strategies, however, to combat the effects of inflation on your independent practice, as Dr. Murray points out:

  • Take advantage of available innovative technology, which will make your practice workflow more efficient.
  • Continue to invest in highly qualified employees, who will add to the quality and efficiency of your practice. One poorly trained front desk person can ruin a practice. Look for other areas to reduce costs.
  • Reduce inventory. Shop around for items you need for your practice to find the best value. For example, Amazon Business may be less expensive than your regular supplier.
  • Pay your office bills with no-fee credit cards that earn points and then be sure to pay them off each month.
  • Pay more attention to billing and collecting. Studies show that many physicians don’t charge for many reimbursable services covered by the Affordable Care Act (ACA). A patient discussion about a living will is reimbursable. Smoking cessation advice and a yearly wellness exam is covered at 100%.
  • Collect all the copays and coinsurance. Learn the art of coding and regularly check receivables to ensure their accuracy and timeliness.