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Running a medical practice requires more than clinical expertise. Physicians and practice leaders must also manage rising operating costs, reimbursement pressures, workforce expenses, technology investments, and cash flow. Recent industry data suggests that these financial pressures are becoming increasingly important for practices evaluating how to maintain stability while continuing to invest in growth.
Operating costs remain one of the most significant financial challenges facing medical practices. According to the Medical Group Management Association (MGMA), 84% of medical groups reported higher year-to-date operating costs in 2026 compared with the same period in 2025. Among those reporting increases, the average increase was approximately 11%. Labor-related expenses, including wages, benefits, and staffing shortages, were identified as major contributors. Other cost pressures included medical supplies, drugs, insurance, rent, and general overhead.
Higher expenses can become particularly challenging when revenue does not increase at the same pace. MGMA reported that only 47% of medical groups saw year-to-date revenue increase in 2026 compared with the prior year, while 36% reported declining revenue. This compares with 56% reporting revenue growth the previous year.
Reimbursement rates can further complicate financial planning. In an August 2026 MGMA survey, only 29% of medical group leaders said their most recent commercial payer rate increase occurred within the previous year, while 50% said their most recent increase was three or more years ago. The combination of rising expenses and slower revenue growth can make cash-flow management increasingly important for practices.
The structure of physician practices has also changed significantly. The American Medical Association (AMA) reported that 42.2% of physicians worked in private practice in 2024, down from 60.1% in 2012. The AMA's research also provides insight into why some physicians move into larger organizations. Among physicians whose practices were acquired by hospitals, health systems, private equity groups, or insurers after 2014, 70.8% identified negotiating higher payer rates as an important reason, while 64.9% cited improved access to costly resources. These findings illustrate the financial considerations involved in remaining independent, expanding a practice, or pursuing an acquisition.
Capital investment is another important consideration. Practices may need funding for equipment, facility improvements, additional locations, technology, or expansion. MGMA's 2026 budgeting research found that workforce was the largest new investment category for 37% of medical groups, followed by health information technology at 30%. Revenue cycle and patient access each accounted for 12%. The data suggests that practices are not simply focused on reducing expenses; many are also allocating capital toward resources intended to support operations and future growth.
Payment models are also evolving. According to the AMA, 82.8% of physicians were in practices receiving at least some fee-for-service revenue in 2024, while 62.4% were in practices receiving at least some alternative payment model revenue. On average, practices received 67.7% of revenue through fee-for-service arrangements and 32.3% through alternative payment models. Understanding when and how revenue is received can therefore be an important component of financial planning.
Labor remains a major expense, but practices are also evaluating technology as part of their financial strategy. MGMA reported that 36% of medical groups identified automation as their biggest cost-cutting initiative for 2026, followed by process improvements at 23%.
Current industry data points to several common financial pressures. MGMA found that 84% of medical groups reported higher operating costs in 2026, while only 47% reported higher year-to-date revenue. Half of medical groups said their latest commercial payer rate increase occurred three or more years ago. At the same time, 37% identified workforce as their largest new 2026 budget investment, while 36% identified automation as their leading cost-cutting initiative. The AMA also reported that only 42.2% of physicians were in private practice in 2024, compared with 60.1% in 2012.
Together, these figures illustrate why capital planning, cost management, and cash-flow visibility remain important considerations for today's medical practices.