A Cost Benefit Analysis of Large Physician Group Practice

Author

Deborah Matthews Jeffery, Fontbonne College

Year of Award

1991

Degree

Master of Business Administration (MBA)

College

College of Business & Professional Studies

Department

Business Administration

Keywords

HMO, hospital, insurance, expenses

Abstract

The urban physician has evolved from the single practitioner to the two physician group and finally evolving into the larger "group" practicing physician. This evolution has taken place due to various factors, and statistics support the view that group physicians are making more money than solo physicians.

Statistics also support the view that because of government and insurance reimbursements for medical services, outpatient medical services are increasing. The physicians participating in multispecialty groups find that they can provide the same services as hospitals "in-house".

Planning within the group to select what services are possible and economical involves more health care management professionals than ever before. Contract negotiations with Managed Health Care Plans for providing services carries more clout when large groups become involved in contracting with Plans.

Large group practices (especially multispecialty groups) have the same fixed costs in varied proportions as solo practices, such as: rent, utilities, tax, licenses and telephone. Using the variable costs to their maximum in group practices provides the most services at the lowest costs. Group practices can select what services they find the economical, solo practices can not afford to provide any, and hospitals are responsible for providing all services.

Governmental negotiations have been proposed to go into effect in 1992 on physicians' office laboratories. It is anticipated that radiology licensing will follow. The cost of maintaining ancillary departments that qualify for licensing will dramatically increase. Only group practices will be able to afford the costs of maintaining the departments.

Projections for the 1990s show that groups will continue to grow in size and revenue while solo practices and small groups' revenues will remain the same or fall off. This indicates that large groups will increase revenues and salaries for the participating physicians.

Only the large groups can compete for services with hospitals, because only large groups can afford to buy the technologies necessary to compete. The cost of medical technologies will continue to grow, and only large groups will have the volume necessary to make the investment pay off.

Projections for gross income show that charges for services will continue to be reduced by government reimbursement limits and by managed care plans. Larger groups can increase charge volume by increasing services while smaller groups do not have that capability.

Insurance expenses, mainly malpractice insurance, has become a concern for physicians. Malpractice expense continues to escalate. Large groups have advantages in negotiating premiums as insurance companies want to deal with groups.

The disadvantages to group practice are varied. It becomes a genuine cost-benefit analysis paradox. The cost savings have been illustrated, but the benefits of savings must be weighed against the loss of independence for the physician.

Document Type

Restricted Thesis

Recommended Citation

Jeffery, Deborah Matthews, "A Cost Benefit Analysis of Large Physician Group Practice" (1991). All Theses, Dissertations, and Capstone Projects. 394.
https://griffinshare.fontbonne.edu/all-etds/394