Does an MBA enhance a physician's ability to manage a medical practice?

January 25, 2011

Can a physician improve the management of a medical practice by obtaining a master of business administration degree?

Can a physician improve the management of a medical practice by obtaining a master of business administration (MBA) degree? My experience illustrates the value of an MBA education in the management of a small medical practice. While still in the MBA program, I (Norman Sohn) faced a formidable task of purchasing approximately $450,000 of colonoscopy and endoscopy equipment for my five-person colorectal surgical practice in New York City. I think it is highly likely that without my new knowledge and information, I would have accepted the endoscope manufacturer's lease agreement. It appeared to be reasonable, efficient, and attractive.

I had just completed a course in corporate financial management, however, and it included the development of a spreadsheet model of lease versus purchase analysis. When I carefully analyzed the lease proposal, I appreciated that this superficially attractive lease came with an unstated interest rate of approximately 14%, substantially higher than commercial interest rates. I was fortunate that, at that time, interest rates were spiraling downward, and I financed the purchase with a bank loan and saved approximately $100,000. In addition, after 5 years-the length of the proposed lease agreement-I harvested the salvage value of the equipment, much of which still had substantial useful life left. I also restructured the office pension/401(k) plan and saved another $100,000 annually without reducing my contribution.

You may be looking at similar issues in your primary care practice and wondering whether the physician who has earned an MBA has an advantage over the doctor whose business acumen is self-taug ht and/or learned from mentors and hands-on experience.

The question of whether one needs an MBA to successfully run a practice has been asked frequently. In March 2010, an ophthalmologist posed this question to Medscape's physician audience: "For those of you with an MBA, has it been helpful for your practice? Physicians receive no training in running a business, and I always considered getting an MBA. Do you recommend this?"

Our research was conducted to determine physicians' feelings about MBA programs. Each response was evaluated as either positive or negative regarding the contributions the MBA education made toward practice management. Several of the responders had other management degrees in lieu of an MBA, such as an MPH. Of these, all had a variable amount of financial education incorporated into the coursework. Physicians with MBA, MPH, and other similar degrees were all grouped together and categorized as MBA.

The results were deemed positive when the respondent believed that the MBA program contributed positively toward small practice management. Because many of the responders had not had MBA training, they responded positively when they anticipated that such training would be beneficial in practice management. A negative response meant that the MBA program was not or was not expected to be helpful in practice management.

WHAT WE FOUND

Between March 28, 2010, and May 9, 2010, 87 individual physicians submitted 120 responses. Of the responders, 48 individuals (55.2%) had MBAs or similar degrees, and 39 individuals (44.8%) did not have an MBA or similar degree. All of the latter and those in MBA programs who were to receive their degrees shortly were categorized as having an MBA. Of those with MBAs, 35 individuals (72.9%) believed the MBA program significantly contributed to their skills as small practice managers, whereas 18.8% said that it did not. Sufficient information was lacking for 8.3% of respondents to come to any conclusion for this question.

In addition, 56.4% of the non-MBA physicians believed that an MBA degree would not enhance their practice management compared with 18.8% of the MBA physicians. Likewise, 72.9% of the MBA physicians were of the opinion that their practice management was enhanced by the business degree. This view was shared by only 15.4% of the non-MBA students. In addition, 56.4% of the non-MBA group felt negatively about the value of an MBA degree.