THE MARGINAL PRACTICE COST OF PHYSICIANS SERVICES

The Medicare Fee Schedule treatment of physician practice expenses has been criticized for not being resource-based. Proposals to reform the methodology for allocating practice expenses to specific services dep end critically on accurate measures of the marginal cost of physician outputs. We estimate the marginal practice cost of five outputs-office visits, ''other visits'', operations/assists, laboratory tests, and r elative Value unit (RVU)-weighted diagnostic tests-using a multiproduc t, quadratic cost function for samples of single-specialty, self-emplo yed general/family practitioner and general surgeon practices.