Is managed care losing its coercive power?

The relationship between managed care and physician financial incentives to reduce care has declined over time, a study in the American Journal of Managed Care suggests. In 2000–2001, both capitated and nonlaminated managed care significantly increased physician incentives to reduce care, but that changed by 2004–2005. Capitated managed care, rather than noncapitated managed care, had the strongest incentives to reduce care, but these effects weakened in 2004–2005, compared to 2000–2001.

Researchers at the Health Economics Research Group at the University of Miami and the departments of economics and preventive medicine at Stony Brook University suggest that this decline may indicate that pressures from other sources are growing, while the effects of managed care and capitation are shrinking.

They report that the pressures on physicians “may stem from sources other than payment (e.g., administrative price limits).”

The declining role of managed care in establishing financial incentives to limit care “seems to suggest that managed care itself is becoming less restrictive,” according to the researchers. Other health plans, however, may be catching up, becoming more restrictive themselves.

“Traditional indemnity plans may be more likely to question procedures and services, much like their managed care counterparts,” according to John A. Rizzo, PhD, coauthor and professor of economics at Stony Brook.

It appears that managed care and traditional indemnity plans were substantially more similar in their effects on physician incentives in 2004–2005, than they were in 2000–2001.

Percentage of patient care practice revenue from managed care

In 2000–2001, physicians who accepted managed care insurance had about 53 percent of their patient care practice revenue come from managed care. Among doctors whose financial incentives did not favor reducing services, the average managed care involvement was lower — 45 percent. So in 2000–2001, greater managed care involvement was associated with greater financial incentives to reduce services. This association vanishes in 2004–2005.

In 2000–2001, there was a positive relationship between capitated managed care and physician financial incentives to reduce services. But by 2004–2005, any associations between capitated managed care involvement and financial incentives to reduce care had disappeared.

Source for both charts: Fang H, Rizzo JA. The changing effect of managed care on physician financial incentives. Am J Man Care. 2008;14(10):653–660

Career Opportunities

HAP, a subsidiary of Henry Ford Health System, is a nonprofit health plan providing coverage to individuals, companies and organizations. This executive develops strategies to meet membership and revenue targets through products, pricing, market segmentation and advertising.  Aligns business among Business Development, Commercial Sales, Medicare and Public Sector Programs and Product Development. Seeks to enhance and be responsible for business development and expansion through the development of an effective product portfolio, strong interpersonal relationships and service excellence.

Apply via email to or online at

Subscribe to Our Newsletters

Monthly table of contents

Be notified as each issue of Managed Care is available online.

Biweekly newsletter

Recent topics have included:

PTCommunity news

New drug approvals, clinical trials, drug management. Three times per week.


Managed Care
By Peter Wehrwein
Managed Care
By Howard Wolinsky