IDEAS home Printed from
MyIDEAS: Login to save this article or follow this journal

Physician Financial Incentives in Managed Care: Resource Use, Quality and Cost Implications

  • Brian S. Armour

    (Kerr L. White Institute for Health Services Research, Decatur, Georgia, USA)

  • Mmelinda Pitts

    (Federal Reserve Bank of Atlanta, Georgia, USA)

Patients with health insurance do not make the most cost conscious healthcare decisions since they bear only a fraction of the total cost of medical care. Managed care advocates point to financial incentives as a way to reduce wasteful resource use. However, physicians with managed care contracts feel financial pressures designed to reduce waste may also limit medically necessary services and adversely impact the quality of patient care. In light of a growing public and professional distrust of the motives behind offering financial incentives, the economic theory of agency is used to illustrate how financial contracts designed to reduce wasteful resource use influence physician behavior. A review of the literature was conducted to determine the effects of financial incentives on resource use, cost and the quality of medical care. The method used to undertake this literature review followed the approach set forth in the Cochrane Collaboration handbook. This review revealed that much of the empirical evidence on the effect of managed care on physician behavior compared the experiences of traditional indemnity plan enrollees with health maintenance organization enrollees. Published studies are outdated and are influenced by statistical problems including both patient and physician selection bias. With respect to the newer types of managed care organizations, there is a paucity of information on the effects of financial incentives on physician behavior. Despite the lack of empirical evidence, the perception remains that managed care financial incentives are perverse in that they induce physicians to take actions that compromise quality of care. To evaluate the legitimacy of these concerns, research on how physician contractual arrangements influence the cost and quality of care in the newer types of plans is needed. In the absence of such research, political rhetoric bent by anecdotal evidence will continue to influence public policy and undermine managed care.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL:
Download Restriction: Pay per view

File URL:
Download Restriction: Pay per view

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Article provided by Springer Healthcare | Adis in its journal Disease Management & Health Outcomes.

Volume (Year): 11 (2003)
Issue (Month): 3 ()
Pages: 139-147

in new window

Handle: RePEc:wkh:dmhout:v:11:y:2003:i:3:p:139-147
Contact details of provider: Web page:

No references listed on IDEAS
You can help add them by filling out this form.

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:wkh:dmhout:v:11:y:2003:i:3:p:139-147. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dave Dustin)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.