Are larger dental practices more efficient? An analysis of dental services production.

Whether cost-efficiency in dental services production increases with firm size is investigated through application of an activity analysis production function methodology to data from a national survey of dental practices. Under this approach, service delivery in a dental practice is modeled as a linear programming problem that acknowledges distinct input-output relationships for each service. These service-specific relationships are then combined to yield projections of overall dental practice productivity, subject to technical and organizational constraints. The activity analysis reported here represents arguably the most detailed evaluation yet of the relationship between dental practice size and cost-efficiency, controlling for such confounding factors as fee and service-mix differences across firms. We conclude that cost-efficiency does increase with practice size, over the range from solo to four-dentist practices. Largely because of data limitations, we were unable to test satisfactorily for scale economies in practices with five or more dentists. Within their limits, our findings are generally consistent with results from the neoclassical production function literature. From the standpoint of consumer welfare, the critical question raised (but not resolved) here is whether these apparent production efficiencies of group practice are ultimately translated by the market into lower fees, shorter queues, or other nonprice benefits.