The Economics of Group Practice.

by Joseph P. Newhouse


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Group medical practice is often urged, to lower health care costs and improve quality; but the claimed advantages do not apply to fee-for-service, single-specialty physician groups that share costs without prepayment plans. In a sample of 20 such groups and solo practitioners, the groups spent more for rent, and their salary costs for nonmedical services such as appointments, records, and billing averaged $2.55 more per patient visit. Hospital outpatient clinics are still less efficient, judging from three with and without teaching functions. Clinic overhead costs per visit (excluding rent) averaged $14.24, compared with $4.54 for private doctors. The economic theory of groups predicts just such lack of motivation to improve efficiency and control costs when the physician does not bear the financial effects. Revenue-sharing doctors also saw fewer patients, but the difference was not statistically significant. It does suggest that encouraging formation of more groups might decrease the supply of medical services while increasing costs. 27 pp. Bibliog.

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