Horizontal and vertical integration of physicians: a tale of two tails.

Abstract

Researchers recommend a reorganization of the medical profession into larger groups with a multispecialty mix. We analyze whether there is evidence for the superiority of these models and if this organizational transformation is underway. DESIGN/METHODOLOGY APPROACH: We summarize the evidence on scale and scope economies in physician group practice, and then review the trends in physician group size and specialty mix to conduct survivorship tests of the most efficient models. The distribution of physician groups exhibits two interesting tails. In the lower tail, a large percentage of physicians continue to practice in small, physician-owned practices. In the upper tail, there is a small but rapidly growing percentage of large groups that have been organized primarily by non-physician owners. While our analysis includes no original data, it does collate all known surveys of physician practice characteristics and group practice formation to provide a consistent picture of physician organization. Our review suggests that scale and scope economies in physician practice are limited. This may explain why most physicians have retained their small practices. Larger, multispecialty groups have been primarily organized by non-physician owners in vertically integrated arrangements. There is little evidence supporting the efficiencies of such models and some concern they may pose anticompetitive threats. This is the first comprehensive review of the scale and scope economies of physician practice in nearly two decades. The research results do not appear to have changed much; nor has much changed in physician practice organization.