The Production and Cost of Ambulatory Medical Care In Community Health Centers

An assessment of the efficiency of Federally funded community health centers (CHCs) in delivering ambulatory medical care to poverty populations reveals that the centers' input decisions reflect departures from cost-minimizing behavior. In particular, they employ too few physician aids (nurses and physician assistants) relative to primary care physicians and too many medical support and ancillary personnel relative to primary care physicians. The CHC system-wide cost reduction due to the elimination of allocative inefficiency is estimated at $32 million in 1978 dollars or 6 percent of total cost. This modest cost reduction and evidence that allocative inefficiency is not more widespread among CHCs than among private sector physicians seriously question the conventional wisdom that services in the public sector are produced less efficiently than in the private sector. Support is also reported for the hypothesis that, since grants are not tied to particular services rendered, centers who derive most of their revenue from this source relative to Medicaid and private insurance have a greater incentive to provide a given mix of services in the least-cost method.