What Factors Affect the Productivity and Efficiency of Physician Practices?

Abstract

Increasing the productivity and efficiency of physician practices could help relieve the rapid growth of US healthcare costs and the expected physician shortage. Radiology practices are an attractive specific focus for research on practices' productivity and efficiency because they are home to many purportedly productivity-enhancing operational technologies. This affords an opportunity to study the effect of production technology on physicians' output. As well, radiology is a leader in the general movement of physicians out of very small practices. And imaging is by the fastest-growing category of physician expenditure. Using data from 2003 to 2007 surveys of radiologists, we estimate a stochastic frontier model to study the effects of practice characteristics, such as work hours, practice size, and output mix, and technologies used in work production, on practices' productivity and efficiency. At the mean, the elasticities of output with respect to practice size and annual hours worked per full-time physician were 0.73 and 0.51, respectively. Some production technologies increase productivity by 15% to 20%; others generate no increase. Using "nighthawks"--ie, contracting out after-hours work to external firms that consolidate workflow--significantly increases practice efficiency. The general US trend toward larger practice size is unlikely to relieve cost or physician shortage pressures. The actual effect of purportedly productivity-enhancing operational technologies needs to be carefully evaluated before they are widely adopted. As the recently-developed innovations of nighthawks and hospitalists show, practices should give more attention to a possible choice to "buy," rather than "make," part of their output.