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Health Care Costs and Financing

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HMO growth during the 1990s was associated with less physician income growth, practice autonomy, and satisfaction

Before managed care, patients' interest in receiving as much care as possible and physicians' financial interests were closely aligned. With the advent of managed care, a variety of administrative mechanisms (for example, utilization review and physician profiling) and financial incentives (for example, capitation, bonuses, and reduced fees) were instituted that were designed to limit the amount of care provided. Continuing growth in the proportion of the population enrolled in health maintenance organizations (HMOs) and financial incentives to reduce services during the 1990s were significantly related to lower physician income growth, reduced practice autonomy, and decreased satisfaction (primarily due to the former two), finds a new study.

With support from the Agency for Healthcare Research and Quality (HS09196), Jack Hadley, Ph.D., of the Urban Institute, and Jean M. Mitchell, Ph.D., of Georgetown University, used 1991 and 1997 interview data from nearly 1,500 doctors practicing in 75 large U.S. metropolitan areas to examine the relationship between HMO growth and physicians' perceived financial incentives and physicians' income, practice autonomy, and satisfaction. Mean net income from medical practice, which was $146,575 in 1990, increased by just over $56,000 between 1990 and 1996. Physicians who in 1997 reported an overall financial incentive in their practice to reduce services saw their incomes grow by $16,626 less than other physicians' incomes.

Physicians felt that these financial incentives reduced their freedom to care for patients who required heavy resource use, shortened time spent with patients, and hampered their ability to care for people who were unable to pay. About 44 percent of doctors surveyed reported some decrease in autonomy, and between 30 and 36 percent reported decreased satisfaction in 1997 compared with 1991. Both increased HMO penetration and having a perceived financial incentive to reduce services negatively affected current practice and career satisfaction.

See "The growth of managed care and changes in physicians' incomes, autonomy, and satisfaction, 1991-1997," by Drs. Hadley and Mitchell, in the International Journal of Health Care Finance and Economics 2, pp. 37-50, 2002.

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