Effects of Managed Care Contracting on Physician Labor Supply

Abstract

We examine the effect of managed care contracting on physician labor supply for office-based medical practices. We extend the standard labor supply model to incorporate choices regarding the patient base. Empirical tests use data from the 1985 and 1988 national HCFA Physician Practice Costs and Income Surveys and InterStudy Managed Care Surveys. We use physician-level information on participation in managed care contracting to estimate changes in work hours. Managed care contracting is generally associated with lower physician work hours. However, accounting for motivations to participate in contracts and the extent of contracting, the effect on hours is reduced in magnitude and significance. We conclude that relying on broad aggregate measures for policy analysis will likely be misleading as underlying motivations and contracting incentives change over time.