Division or department: A microeconomic analysis

Background: In this article, the authors present a microeconomic analysis of the effects of the administrative status on plastic surgery units within academic medical centers, comparing the departmental versus subdepartmental status. The objectives are to introduce decision-making tools of microeconomics and use them to explore the potential effects of administrative status on academic plastic surgery services. Methods: Real financial data over a decade were used to construct total cost (TC), average total cost (ATC), and total revenue (TR) curves. From these, the authors derive the efficiency scale and express the fiscal performance by examining profitability, and the commonly used ATC curve. Mathematical modeling is then used to examine the effects of departmental versus subdepartmental status, assuming that (1) a plastic surgery unit exists in a competitive market; and (2) TR > TC for the plastic surgery unit to self-sustain in the long term. The variables considered are total clinical production (Q), gross collection rates (GCR), personnel cost, and departmental tax. Results: The sustainability (Q against GCR) is a hyperbolic curve with Q × GCR = TC at break-even. The TC/TR = f(TR) curve resembles the ATC curve. Sectional versus departmental status for a plastic surgery service in an academic medical center depends greatly on the shape of their TC/TR = f(TR) curve. Conclusions: With most competing clinical units within the same academic medical center having departmental status, and most competing private surgeons having no institutional "taxes," the essential requirement for academic medical center plastic surgery services is to ensure that their TC/TR = f(TR) curve is comparable to that of their competitors.