How Smart Leaders Are Responding to Shrinking Margins and Increasing Costs

By Megan Ferguson

Independent medical practices are under growing financial pressure. A fifth consecutive year of Medicare reimbursement cuts – a 2.8% reduction in 2025 – combined with a projected 3.5% rise in operational costs, is putting the future of independent healthcare at risk.

Medical practices of all sizes are complex business entities. Practice managers fill a variety of roles, handling so many “must-do” tasks in one day that it’s easy to focus on pushing new claims, managing schedules and the like, rather than more strategic efforts with an emphasis on maximizing financial performance. It’s common for practices to delay addressing denials and appeals, coding errors, and insurance and vendor contracts – and it’s understandable.

However, the most successful, privately held practices are stepping away from the daily urgency to remain vigilant in responding to these issues. They are planning for the future and have a vision for continued independence. Independent practices can maintain control over care, operations, and finances, allowing for stronger patient relationships and quick adaptability. They also benefit from local trust, flexibility, and room for innovation without corporate restrictions.

Revisit Contracts Annually

Managers should review contracts from insurers and vendors every year, but some are waiting two or three years or even longer. This ensures the baseline information is current and up to date, for starters. Outdated terms or rates may be costing your practice money. Practices that come to the table armed with data can more easily negotiate better terms. New price transparency guidelines can add value for practices working with payers for a more competitive contract.

Prioritize Denial Management

Successful practices are identifying whether they have the proper staffing and processes in place to handle denials, particularly larger claims that may be neglected. Limited staff may be to blame for putting denials on the back burner, as new claims take top priority, but it’s also possible the claim was submitted incorrectly. Determine whether your team has the capacity and training to manage denials effectively. In some cases, outsourcing the work may be more efficient. Another potential solution is cross-training staff. Perhaps a clinical staff member could help with another provider’s volume instead of adding headcount. Taking a proactive approach to denial management may not only protect revenue but also support long-term operational stability.

Implement Benchmarking

Benchmarking is essential for medical practices aiming to stay competitive. Key metrics, such as patient volumes, payments, accounts receivable, staffing levels and more, can be compared to industry standards to identify areas for improvement, set doable goals and potentially save money. By implementing key performance indicators (KPIs), you can transform the data into an overall picture of the practice’s finances to home in on potential cost savings.

Consider an Incentive Program

Recruiting and retaining qualified professionals at medical practices is a top concern, as turnover is high and the costs of hiring and training can be prohibitive. Practices need to explore creative staffing options given the limitations on remote work in a competitive job market. A financial incentive program, in which mid-level providers are given quarterly bonuses to hit certain targets, may boost loyalty and help with future recruitment.

Meet with Your Tax and Finance Teams Often

Accounting and tax professionals often serve as the first line of defense against financial challenges, such as declining revenues or unexpected expenses. Maintaining close collaboration with them and scheduling regular meetings is essential for early detection and discussion of these variances.

Additionally, consider outsourcing administrative functions or engaging consultants to identify cost-saving opportunities and generate strategies to boost revenue. This approach not only reduces overhead costs but also provides access to specialized expertise and advanced technologies, enabling your practice to focus on core competencies and patient care.

Independence Requires Intentionality

Staying independent in today’s healthcare environment requires strategic thinking. With a forward-looking approach on contracts, claims, staff engagement and financial management, practice leaders can protect profitability and provide flexibility for the future. This means you have to focus on those priorities that improve margins and optimize performance.

Practices that make smart decisions today will thrive tomorrow. Make time for what matters most – the future of your practice depends on it. Sustainable independence isn’t accidental; it’s built through deliberate action and consistent follow-through.