ECONOMIES OF SCALE IN PHYSICIAN PRACTICE

A potentially important source of productivity gains in physician prac tices is larger practice size. We investigate economies of scale in ph ysician practices using a large nationwide survey of self-employed phy sicians. When output is measured by practice revenues, we estimate sig nificantly increasing returns to scale for single-specialty practices, implying that forming larger practices lowers costs. The lowest-cost practice size is estimated to be 5.2 physicians compared to a sample a verage size of 2.4 physicians. On average, scale inefficiency is estim ated at 9%. Measuring output by physician office visits, we find that group physicians provide 17% more office visits than solo practitioner s, controlling for practice inputs, and physician and practice charact eristics. Physicians practicing in mid-sized groups of three to four a re the most productive, providing 21% more visits than solo physicians . If all physicians practiced in the most productive group size, avera ge office visit productivity would rise by 13%.