The changing effect of managed care on physician financial incentives

Objective: To examine how managed care affects physician financial incentives to reduce services to their patients, particularly how this relationship has evolved over time and whether the effects of capitated managed care and noncapitated managed care are different. Study Design: Retrospective study using Community Tracking Study physician survey data from 2000-2001 and 2004-2005. Methods: Physicians were included in the study sample only if they were surveyed in both 2000-2001 and 2004-2005 (balanced panel data). The study sample consisted of 4154 physicians, for a total of 8308 observations in 2 periods. Bivariate and multivariate analyses were used to analyze responses to questions regarding financial incentives, involvement with managed care as a share of practice revenues, and physician and practice characteristics. Results: Both capitated and noncapitated managed care significantly increased physician incentives to reduce care during 2000-2001, but neither had a statistically significant effect on financial incentives by 2004-2005. Capitated managed care rather than noncapitated managed care created the strongest incentives to reduce care; however, even these effects became rather weak during 2004-2005 compared with those in 2000-2001. Conclusion: Managed care and traditional indemnity plans were substantially more similar in their effects on physician incentives to provide care by 2004-2005 than they were just 3 years earlier. This should alleviate policy concerns that managed care is providing physicians with the "wrong" financial incentives to provide care.