Managing Physician Incentives in Managed Care

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Abstract
The recent rapid growth of HMOs has resulted in a proliferation of contractual arrangements that offer financial incentives to induce primary care doctors to change the way they practice medicine. The impact of these incentives varies with the different incentives and with the environments in which the incentives are implemented. Although financial incentives exist in some form in the great majority of HMOs, there has been no detailed and valid information available on the way these physician incentives are managed or on the characteristics of the standard operating "climate" in which the incentives exist. This study was designed to measure a firm (organizational) characteristic hypothesized to be related to the firm's effort, ability, or desire to make financial incentives work strongly. The characteristic considered is whether the firm is a for-profit or a not-for-profit organization. The goal of this study was to provide a direct test of the relationship between HMO ownership type and the effectiveness of primary care physician incentives. Results of the study indicate that for-profit ownership does enhance the power (or the need) of management to offer effective rewards for parsimonious use of health care resources.

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