Is bigger always better? The optimal size of a group practice

The past decade saw several attempts to consolidate physician practices, but this sector remains one of the last cottage industries in the United States. This article develops a framework for analyzing the optimal size of a physician practice. The framework addresses technological factors (e.g., economies of scale and scope), behavioral factors (e.g., changing physician goals, costs of organizing and operating a practice), and market-driven factors (e.g., managed care contracting). Existing empirical research suggests three "optimal" sizes of practices: 5-10 physicians, based on economies of scale and decision-making; 20-30 physicians, based on economies of scope and initial development of a corporate structure; and 80+ (multi-specialty) physicians, which can create an system of referrals and utilization. The article concludes with observations about the challenges to physician practices as they grow.