Determinants of specialty physician practice management integration

Physicians increasingly organize strategically to mitigate the potentially adverse impacts of managed care on practice incomes. There are alternative routes to physician organizing. This article used a 1996-1997 survey of orthopedics and obstetrics-gynecology (OB-GYN) practices in Memphis, Tennessee (a large medical services market), to investigate the determinants of specialty physician integration through physician practice management (PPM) firms. The percentage of managed care contracts indicates a weak but positive correlation with PPM integration. Different factors appear to influence the likelihood of integration in different specialties. Probit model results of the OB-GYN data suggest the increased likelihood of integration in practices with at least seven physicians. The probability of PPM integration is associated with significant economies of scale in the number of non-physician clinical employees per physician. Probit estimates of the orthopedics specialty indicate the likelihood for integration as significantly inversely related to the total number of clinical and non-clinical employees. Given physical capital intensity in orthopedics, the exhaustion of scale economies at a lower level of an integrated practice employment is expected. The strong predictive power of the probit model estimates makes it a useful tool for predicting the likelihood that a randomly chosen specialty practice is integrated.