The effect of managed care on the incomes of primary care and specialty physicians

Objective. To determine the effects of managed care growth on the incomes of primary care and specialist physicians. Data Sources. Data on physician income and managed care penetration from the American Medical Association, Socioeconomic Monitoring System (SMS) Surveys for 1985 and 1993. We use secondary data from the Area Resource File and U.S. Census publications to construct geographical socioeconomic control variables, and we examine data from the National Residency Matching Program. Study Design. Two-stage least squares regressions are estimated to determine the effect of local managed care penetration on specialty-specific physician incomes, while controlling for factors associated with local variation in supply and demand and accounting for the potential endogeneity of managed care penetration. Data Collection. The SMS survey is an annual telephone survey conducted by the American Medical Association of approximately one percent of nonfederal, post-residency U.S. physicians. Response rates average 60-70 percent, and analysis is weighted to account for nonresponse bias. Principal Findings. The incomes of primary care physicians rose most rapidly in states with higher managed care growth, while the income growth of hospital-based specialists was negatively associated with managed care growth. Incomes of medical subspecialists were not significantly affected by managed care growth over this period. These findings are consistent with trends in postgraduate training choices of new physicians. Conclusions. Evidence is consistent with a relative increase in the demand for primary care physicians and a decline in the demand for some specialists under managed care. Market adjustments have important implications for health policy and physician workforce planning.