Physician productivity and returns to scale

Abstract

Cobb-Douglas production functions are used to estimate returns to scale in a sample of solo and group medical practices stratified by size and type of practice. Solo practices and small single-specialty groups are stratified by specialty, and large multispecialty groups are stratified as general practice-general surgery or comprehensive-care groups. Output measures used are gross revenue, total patient visits, and office visits; input measures reflecting practice scale are number of physicians, number of rooms, and number of nonphysician office personnel. Results indicate increasing returns to scale for solo and small group practices but decreasing returns to scale for very large groups. Possible reasons for inefficiency in large practices and the implications of the findings for public policy on health maintenance organizations are discussed.