view PDF - American Association of Neurological Surgeons

Cranial Surgery Privileges
output to maximize profit, described by Maurice and Thomas in
their 1995 book Managerial Economics, can be applied to neurosurgical
practice thusly: If neurosurgeons consider surgery as their
product, the means to maximizing profit is to choose the level of
the activity, or surgery, at which the additional revenue just equals
the additional cost.
If a neurosurgical practice produces craniotomies and the market
price of craniotomies is $1,500, the marginal revenue from each
additional craniotomy is $1,500. The neurosurgeon would increase
craniotomy production as long as the marginal cost of each additional
craniotomy is less than $1,500. The neurosurgeon would not
increase production if the cost of each additional craniotomy is
more than $1,500 to produce.
The marginal cost of producing craniotomies has steadily
increased due to escalating practice overhead, including the cost
of medical liability insurance. The marginal revenue has steadily
decreased due to diminishing insurance reimbursements. In
addition, there is the previously discussed phenomenon of opportunity
cost wherein neurosurgeons forego the revenues generated
from additional spinal surgeries by performing craniotomies,
particularly in emergency cases.
Purely from an economic perspective, a neurosurgeon would
decrease the output of craniotomies when marginal cost is greater
than marginal revenue. A neurosurgeon would increase the number
of craniotomies when the added revenue from the expansion
(marginal revenue) is greater than the added cost of the expansion
(marginal cost). In order to maximize profit, the neurosurgeon
would choose to produce the level of output for which marginal
revenue equals marginal cost.
Neurosurgery, of course, is not solely an economic enterprise.
Some services are offered which, while less profitable, are considered
part of the full array of neurosurgical services, and these services
are subsidized by other more profitable services. However,
when margins run thin and subsidies disappear, the less profitable
services such as cranial surgery may be dropped.
When deciding on the value of neurosurgical services offered,
neurosurgeons might heed the wisdom of Jim Collins, author of
business books Built to Last and Good to Great:
Our study clearly shows that a company does not need to be in a
great industry to become a great company. Each good-to-great company
built a fabulous economic engine, regardless of the industry.
They were able to do this because they attained profound insights
into their economics.
Neurosurgical practices are, at least in part, economic enterprises,
and neurosurgeons undoubtedly can benefit from the
insights that economic analysis can yield. 3
Richard N.W. Wohns, MD, MBA, is chair of the AANS Professional Liability
Committee and chair of the CSNS Northwest Quadrant. He is president and founder
of South Sound Neurosurgery, PLLC, in the Puget Sound region of Washington.
Surgeons Link Ad
PU Fall 2005
The Benefit of Economic Insight
The phenomenon of decreasing the output of craniotomies,
that is, giving up cranial surgery privileges, may actually be an
attempt by neurosurgeons, with or without formal economic
analysis, to establish at least a short-term microeconomic competitive
equilibrium. Whether this will become a more prevalent
long-term strategy for neurosurgeons, for whatever reason, is yet
to be determined.
Volume 14, Number 4 • AANS Bulletin 31