Multispecialty physician practices: fixed and variable costs, and economies of scale

Abstract

Medical Group Management Association survey data from 1955 to 1999 was to assess fixed compared to variable cost and the existence of economies of scale among single- and multispecialty groups. During these intervening 44 years, physician operating costs were estimated to increase roughly three times the consumer price index. Among the multispecialty groups in 1999 at least 85% of total medical revenues were considered fixed costs when including a physician's compensation and fringe benefits. On the basis of relative value units (RVUs), 10 practitioners provided the maximum economies of scale. However, for multispecialty groups, based on a physician's total compensation, optimal efficiency occurred between 26 and 50 doctors. Those multispecialty practices with 51 or more MDs are thought to be "less efficient" for several reasons: they deliver care on multisites, experience a higher percentage of managed care patients, and are less effective in controlling their peers' use of time and resources.