Group practice trend makes private specialists more profitable: report

Private specialist practices are becoming more profitable, thanks mostly to efficiencies from smaller operations combining into group clinics, health economists say.

The latest ANZ–Melbourne Institute Health Sector Report has found specialist medical business profits rose by an average of 5.4% annually over the past 15 years, with gains continuing despite a bump early in the pandemic.

It says the boom means specialist private practices continue to be among the most profitable businesses in the country, with better margins than other professions such as law, accountancy and finance.

Margins are also significantly fatter than other industries like construction and agriculture, despite a significant uptick in costs in recent years, said the report (link here).

On top of that, the effects of COVID-19 on profitability “seem to have been temporary”, found the authors led by University of Melbourne health economist Professor Anthony Scott.

“Turnover fell during the early phase of the pandemic before bouncing back in 2020–21, however business costs have continued to increase above the historical trend,” they wrote.

They said that while profits were increasing, so were expenses, which could be leading more medical entities to consolidate.

The total number of doctors in solo private practice had fallen by 0.5% between 2013 and 2020, while the number in private group practices had increased by 28.9% over the same period, the authors found.

There’s been a large increase in the number of specialists coming together under one entity to seek the benefits of being in a larger organisation, Professor Scott said.

“These benefits can include lower overhead costs through sharing of resources such as buildings and administrative support. We’ve seen this trend occur in other countries including the USA and it can mean fewer businesses are operating and reducing competition.

“This could lead to price increases for consumers in an industry where out of pocket costs are already growing fast,” he said.

However, while the number of doctors in group private practice is on the rise, average weekly working hours in private practice is falling, the report found.

Average weekly clinical hours spent in private settings
Specialty 2013 2020
Oncology 12.2 10.6
Cardiology 27.5 24.8
Other physicians 17.2 15.2
Surgery 25.9 24.8
O&G 25.4 22.3

It said this was consistent with reductions in the growth of utilisation of private health care between 2015 and 2020.

The sector was also tipped for a bright future, with demand likely to remain high as people who delayed care during the pandemic returned to their doctors.

Nevertheless, inflation was a potential issue – particularly for patients on lower incomes, the report said.

“Being able to manage medical businesses more efficiently through new technology and improvements in management and organisation (such as efficient business structures) is becoming more important as cost pressures continue,” it added.

“Consolidation and cost cutting can improve the efficiency of medical businesses but also has potential implications for patients in terms of access to care, choice and out of pocket costs which need to be monitored.”

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