Physician Opportunity Costs in Physician Practice Cost Functions

Published in: Journal of Health Economics, v. 17, no. 2, Apr. 1998, p. 129-151

Posted on RAND.org on January 01, 1998

by Jose J. Escarce, Mark V. Pauly

Read More

Access further information on this document at Journal of Health Economics

This article was published outside of RAND. The full text of the article can be found at the link above.

Estimation of cost functions for physician firms is problematic because many physicians are self-employed, and the marginal opportunity cost of physician labor is not observed. In this paper, the authors show how to recover marginal costs and conventional measures of economies of scale from cost functions that condition on the amount of physician labor input. In addition, they introduce the new concepts of marginal nonphysician input costs and behavioral economies of scale, which reflect the structure of costs when physician labor input moves along a utility-maximizing expansion path. The results could be useful in the design of resource-based physician fee schedules.

This report is part of the RAND Corporation External publication series. Many RAND studies are published in peer-reviewed scholarly journals, as chapters in commercial books, or as documents published by other organizations.

Our mission to help improve policy and decisionmaking through research and analysis is enabled through our core values of quality and objectivity and our unwavering commitment to the highest level of integrity and ethical behavior. To help ensure our research and analysis are rigorous, objective, and nonpartisan, we subject our research publications to a robust and exacting quality-assurance process; avoid both the appearance and reality of financial and other conflicts of interest through staff training, project screening, and a policy of mandatory disclosure; and pursue transparency in our research engagements through our commitment to the open publication of our research findings and recommendations, disclosure of the source of funding of published research, and policies to ensure intellectual independence. For more information, visit www.rand.org/about/principles.

The RAND Corporation is a nonprofit institution that helps improve policy and decisionmaking through research and analysis. RAND's publications do not necessarily reflect the opinions of its research clients and sponsors.