One size doesn’t fit all in molding the right practice
Research shows points of diminishing returns
Size does matter when it comes to the particulars of your practice. At least that’s the conclusion of recent research sponsored by the Englewood, CO-based Medical Group Management Association on the optimum number of doctors in a practice. According to Jonathan D. Ketcham, a PhD candidate at the University of Pennsylvania’s Wharton Business School in Philadelphia, once a medical group grows beyond 10 physicians, its operating efficiency drops dramatically.
Ketcham determines a practice’s efficiency quotient by dividing the practice’s total operating costs by the relative value units (RVU) it bills. He concluded that for practices logging around 100,000 RVUs annually, optimum efficiency is reached once a group hits $23 in operating costs per RVU. These optimum practices tended to contain from three to 30 physicians, with an average size of approximately 10 doctors.
Despite the fact about two-thirds of self-employed physicians are in practices with one to three doctors, because of the inherent inefficiencies of these smaller practices, overall practice productivity is hard to improve by just adding another doctor, the study concludes. To reach optimum economies of scale, the group must get big enough to free doctors to just see patients, while generating enough business to justify adding more nurses, front-office staff, and billing and collections experts.
On the flip side, the study argues these economies start diminishing once a practice expands beyond a certain size. This usually happens once it starts creating satellite offices that require more staff compared to patient volume at its main location. However, while statistically less efficient, larger practices still tend to pay better. According other data from the MGMA, average physician compensation tends to be highest in practices with 50 or more doctors.
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