The Rise of Managed Care and the Decline of Physician Self-Employment

The growth of managed care as the predominant mode of health insurance in the U.S. has inspired innumerable studies of its effects on health service delivery. One of the most striking trends has been an increase in the proportion of physicians who are employees, with no ownership stake in their medical practices. Overall, 24 percent of physicians were employees in 1985, but by 1994 this figure had risen to 43 percent. The trend is reflected among doctors at all career stages; among those in the first five years of practice, the employee proportion rose from 37 percent in 1983 to 65 percent in 1997. For doctors with more than 15 years of experience, the increase was from 19 percent to 35 percent (Kletke 1998). During the 1980s and 1990s the market share of managed care insurers also increased rapidly. Health maintenance organizations (HMOs) – the most common and most restrictive form of managed care – insured 9.1 million Americans (4 percent of the population) in 1980, and 81.3 million (30.1%) in 1999 (National Center for Health Statistics 2000). The effects of managed care are pervasive in the health care industry, with particularly strong impacts on the incentives faced by consumers and providers of health care, and consequently on the ways in which care is organized and delivered. From the self-employed physician's perspective, managed care organizations have imposed downward pressures on revenues, increased administrative costs, and shifted