Scope and scale inefficiencies in physician practices

Abstract

Using a national data set, this paper looks at the efficiency of physician practices, focusing on scopes of service by comparing single specialty groups and multispecialty groups. An analysis of efficiency using DEA indicates that there are scope inefficiencies from combining different types of providers into a single practice. Most of the inefficiency is due to technical rather than allocative reasons. In addition, we find that larger practices are able to capture efficiencies of scope, but incur inefficiencies of scale.

Technical efficiency in primary health care: does quality matter?

“…This introduces further difficulty into the analysis, and indeed there have been only a few studies taking this line, such as Salinas-Jiménez and Smith (1996), García et al (1999), and, more recently, Rosenman and Friesner (2004).…”

Measuring Changes in the Economics of Medical Practice

“…Output metrics included visits per week, 1,17 as well as more detailed enumerations of nonsurgical, surgery and anesthesiology, clinical lab, pathology, and diagnostic radiology and imaging procedures. 2,13,14 Some studies have also looked at some measure of practice revenue as an output. 3,11,13,16 However, because medical prices typically have little relationship to actual costs or quantity of output, our focus will be on medical services, not revenue.…”

“…19,20 Given the increasing range of services provided by physicians, some more recent studies have moved away from counts of discrete services to [1][2][3]9,11,[13][14][15][16][17] Number of full-time employees (e.g., non-physician providers such as registered nurses or medical assistants) Facilities or office space 2,9,11,13,15,16 Office rental; medical records; computing Medical equipment 2,9,11,13,16 Radiological equipment Supplies 11,13,16 In-office ancillary services (e.g., laboratory) Malpractice insurance 13 NA Practice administration 13,16 Billing; insurance company contracting and monitoring; accounting and payroll; marketing and promotion; legal and consulting; housekeeping, maintenance, and security 13,21,22,38 Derived from the Resource-Based Relative Value Scale (RBRVS), RVUs provide a measure of output that account for both the mix (based on relative resource intensity) and the number of services provided by physicians. RVUs also fall short, however, as a conceptual metric for the output from a physician or their practice.…”

“…For example, physicians can report on the number of patients they care for and their proportion of time spent in various clinical activities (for example, evaluation and management visits, interpreting test results and performing procedures) and nonclinical activities. 1,2,13 Of course, physicians may not be reliable respondents if asked about the appropriateness or quality of the services they provide. 34 Further, even if physicians provide reliable data on their own daily activities, their reports may not reflect a full understanding of the contributions from other members of the contemporary medical practice team.…”

“…Since the 1970s, economists and healthcare researchers have estimated output production and input cost functions for physician practices. These studies investigate the costs of producing physician services, 1 the input combinations most efficiently combined to produce physician services, 2 and the economies of scale in the provision of physician services. 3 In a recent review of literature on scale and scope economies in physician practice organizations, Burns and colleagues noted there has been rapid growth in very large physician practices, but that most physicians continue to practice in smaller and single-specialty practices.…”