IMPACT OF MANAGED CARE ON QUALITY OF HEALTH-CARE - THEORY AND EVIDENCE

Each strategy for managing healthcare risk has important and unique im plications for the patient-provider relationship and for quality of ca re. Not only are different incentive structures created by different r isk-sharing arrangements, but these incentives differ from those in a fee-for-service environment. With fee-for-service and traditional inde mnity insurance, physicians have incentives to provide healthcare serv ices of marginal value to the patient; under managed care, physicians have fewer incentives to provide marginally beneficial services. Howev er, the impact of financial arrangements on quality of care remains am biguous, because it depends on the strategic behavior of physicians wi th regard to their informational advantage over their patients. Using the framework of an agency theory model, we surveyed the current scien tific literature to assess the impact of managed care on quality of ca re. We considered three different dimensions of quality of care: patie nt satisfaction, clinical process and outcomes of care measures, and r esource utilization. Although we found no systematic differences in pa tient satisfaction and clinical process and outcomes between managed c are and fee-for-service plans, resource utilization appears to be decr eased under managed care arrangements. Given the strengths and weaknes ses of fee-for-service and managed care, it is unlikely that either wi ll displace the other as the exclusive mechanism for arranging health insurance contracts. Policy makers may be able to take advantage of th e strengths of both fee-for-service and managed care financial arrange ments.