How Does a Managed Care Plan Impact a Physician’s Practice?

The rise of managed care in the U.S. healthcare system has transformed how physicians practice medicine. Managed care plans, which integrate healthcare financing and delivery to control costs, havebecome the dominant form of health insurance coverage over the past few decades.

This rapid shift has had major implications for physicians’ clinical autonomy, patient relationships, workflow, and job satisfaction. As more patients enroll in managed care plans, physicians must adapt to new protocols, administrative requirements, and financial incentives.

This article examines the key ways managed care impacts physicians’ practices, drawing on research studies and physician survey data.

Restrictions on Clinical Decision-Making

A core aim of managed care is to reduce unnecessary healthcare spending by ensuring care adheres to established clinical guidelines. To accomplish this, managed care plans often require physicians to:

  • Obtain pre-authorization for tests, procedures, specialty referrals
  • Prescribe from a formulary of approved medications
  • Follow treatment protocols for diagnosing and managing common conditions

While guidelines can improve quality, many physicians feel these restrictions undermine their clinical judgment and ability to develop customized treatment plans based on a patient’s unique needs.

In a survey of over 500 Arizona physicians, 27% agreed they sometimes must ignore their clinical judgment and follow managed care directives regarding patient care. The more patients a doctor had under managed care, the more they reported restrictions on their decision-making autonomy.

Emphasis on Cost Reduction

To control spending, managed care plans use various financial incentives and disincentives to influence physician practice patterns. These may include:

  • Capitation payments, where physicians receive a flat fee per patient rather than a fee for each service. This motivates doctors to avoid unnecessary care.

  • Bonuses for meeting utilization and cost targets, which can discourage expensive tests, specialist referrals, and hospitalizations.

  • Penalties for overusing services relative to peers.

While aimed at reducing waste, physicians may feel pressured to withhold care that could benefit patients. In one survey, over a third of doctors said financial incentives to limit care negatively affected quality.

Increased Administration and Oversight

To monitor utilization and spending, managed care plans generate reams of reports, audits, and other administrative tasks. A survey of Massachusetts physicians found they spent nearly 14 hours per week on quality reporting and utilization review – time taken away from patient care.

Doctors also face oversight through prior authorizations, formularies, profiling of practice patterns, and health plan denials of coverage for requested services. One study found physicians with more managed care patients reported greater paperwork burdens and restrictions.

Disruption of Patient Relationships

Under managed care plans, patients are often required to switch primary care physicians if their employer changes health plans. Even within the same plan, patients may change doctors if their employer alters the specific network or coverage options.

In surveys, physicians with significant managed care patient loads are more likely to report patients moving in and out of their practice due to insurance changes. This hampers relationship-building and continuity of care.

Doctors also note less patient trust due to their perceived gatekeeper role. Restricting care to control costs may cause patients to view physicians as adversaries.

Lower Earnings Potential

To reduce reimbursement costs, managed care plans often pay physicians according to a standardized fee schedule that is lower than what doctors could charge independently. Capitation and salary arrangements also limit earnings.

One study found primary care physicians with a heavier managed care mix earned 10% less than those with mostly fee-for-service patients. Specialists take an even bigger hit, with 30% lower incomes on average when heavily engaged in managed care.

Loss of Practice Autonomy

Traditionally physicians owned their own practices or were partners in small group practices. Managed care has pushed more doctors to become employees of large groups or hospitals to obtain economies of scale and bargaining power with insurers.

Employed physicians have less control over their schedules, office policies, hiring decisions, revenue, and choice of payers. Those in large practices who are shareholders may influence decisions but still face constraints compared to solo practice owners.

Lower Job Satisfaction

With declining autonomy, disrupted patient relationships, increased bureaucracy, and reduced earnings, it’s not surprising physician career satisfaction has fallen in the managed care era.

Multiple studies show physicians with higher managed care loads express less satisfaction. Factors reducing satisfaction include loss of clinical control, lower fee schedules, interference in referral relationships, and tension with patients due to coverage restrictions.

However, giving doctors a voice in organizational decisions and preserving clinical discretion can moderate the negative impacts on satisfaction.

Steps Physicians Can Take

Physicians feeling frustrated by managed care’s constraints have several options:

  • Negotiate contracts that offer satisfactory payment rates and allow appropriate clinical discretion. Refuse to accept overly restrictive plans.

  • Engage patients as advocates to obtain needed care approvals or exceptions to restrictions. Document patient needs thoroughly.

  • Develop efficient office protocols to handle administrative tasks like utilization reporting with minimal disruption to patient care. Leverage EHRs and support staff.

  • Create alternative revenue streams by expanding services not dependent on managed care, such as concierge practices, cosmetic treatments, clinical trials, or expert testimony.

  • Pursue leadership opportunities to shape organizational policies and reimbursement design. Health systems need physician viewpoints.

  • Lobby professional organizations to advance state and federal legislation around liability protection, due process, and prohibiting payment incentives to limit medically necessary care.

  • Emphasize patient education and empowerment. Help patients understand their coverage requirements so they are prepared when care options are limited.

The Future of Managed Care

While challenging for physicians, managed care delivery and financing systems are deeply entrenched in American healthcare. Rather than trying to avoid managed care altogether, providers are wise to adapt successfully to this reality.

New models are emerging that may prove less onerous to physicians. Accountable Care Organizations (ACOs), Patient-Centered Medical Homes (PCMHs), and pay-for-performance programs aim to reward coordinated, high-value care rather than impose utilization limits. Direct primary care and concierge practices offer escape valves.

Improving patient experience, quality metrics, and efficiency – and qualifying for financial incentives under new payment schemes – will require teamwork between physicians, health systems, and payers. Organizations that meaningfully engage physicians in planning and governance can build trust.

With reform, the managed care paradigm need not preclude high professional satisfaction alongside cost-effective care. But achieving the ideal balance requires physicians to make their voices heard.

Key Takeaways

  • Managed care impacts physician practices through restrictions on clinical care, financial incentives, administrative tasks, disrupted patient relationships, reduced autonomy, lower earnings, and diminished career satisfaction.

  • Effects on physicians become more pronounced as the percentage of managed care patients in their practice increases.

  • New models of coordinated care like ACOs and PCMHs aim to reward quality and outcomes rather than impose utilization limits.

  • Physicians should negotiate satisfactory contracts, involve patients in care decisions, maximize office efficiencies, diversify revenue, pursue leadership roles, and lobby for favorable legislation.

  • While challenging, managed care is the dominant health insurance model. Finding ways to successfully operate within this system is key for professional fulfillment.


Bodenheimer, Thomas, and Kevin Grumbach. “The Reconfiguration of US Medicine.” JAMA. 2021 May 4;325(17):1785-1786.

Donelan, Karen, et al. “The new medical marketplace: physicians’ views.” Health Affairs. 1997 May 1;16(3):139-48.

Edlin, Mari. “HMOs cry ‘Eureka!” Managed Healthcare. 1994 Oct 1:39-40.

Feldman, Debra S., et al. “Effects of managed care on physician-patient relationships, quality of care, and the ethical practice of medicine: a physician survey.” Archives of internal medicine. 1998 Aug 10;158(15):1626-32.

Simon, Chassin R., and Born, Patricia H. “Physician earnings in a changing managed care environment.” Health Affairs. 1996 Mar;15(1):124-33.

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