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There is ample evidence that many clinical decisions made by physicians are inconsistent with current and generally accepted evidence. This leads to the underuse of some efficacious diagnostic, preventive or therapeutic services, and the overuse of others of marginal or no value to the patient. Evolving new payment and delivery models place greater emphasis on the provision of evidence-based services at the point of care. However, changing physician clinical behaviors is likely to be difficult and slow. Policy makers therefore need to design interventions that are most effective in promoting greater evidence-based care. To help identify modifiable factors that can influence clinical decisions at the point of care, we present a conceptual model and literature review of physician decision making. We describe the multitude of factors--drawn from different disciplines--that have been shown to influence physician point-of-care decisions. We present a conceptual framework for organizing these factors, dividing them into patient, physician, practice site, physician organization, network, market, and public policy influences. In doing so, we review some of the literature that speak to these factors. We then identify areas where additional research is especially needed, and discuss the challenges and opportunities for health services and policy researchers to gain a better understanding of these factors, particularly those that are potentially modifiable by policymakers and organizational leaders.

Despite efforts to reduce hospital utilization and length of stay, hospital care continues to account for a substantial portion of total health care expenses (Levit et al. 2002; Agency for Healthcare Research and Quality 2000). In addition, spending on hospital care is on the rise once again. In 2000, hospital inpatient and outpatient services accounted for 43 percent of the growth in total health care spending, more than twice the share of the 1999 increase (Strunk, Ginsburg, and Gabel 2001). Over the past three decades, public and private purchasers turned to managed care plans to stimulate greater hospital competition and reduce hospital expenditures and costs.1 Two techniques managed care plans used to achieve these goals were selective contracting and utilization management. As we discuss further in the background section, these techniques and other market dynamics weakened hospitals' negotiating leverage with plans. The purpose of this paper is to provide a recent but longitudinal description of managed care plan–hospital contracting. In particular, the paper focuses on hospitals' market power in contract negotiations with plans.2 Plan–hospital negotiations continue to be a critical nexus where competitive market forces meet in the managed care world, with significant implications for the organizations involved, the patients and communities they serve, and health care expenses. Market power is defined as the degree of control or influence an organization has over another organization (Scott 1987; Emerson 1962).3 Control or influence is shaped by the willingness and ability of one organization to sanction (i.e., punish or reward) another organization that it interacts with to attain key goals, such as survival, growth, or increased margins. The origin of market power is the dependency one organization has on the resources controlled by another. Two specific questions about hospitals' market power are addressed in this paper. First, how has hospitals' negotiating leverage with managed care plans changed from 1996 to 2000? Second, what factors explain any changes in hospitals' negotiating leverage between 1996 and 2000? Our findings suggest that many hospitals' negotiating leverage increased significantly since 1996, with the largest gains occurring over last two years. While almost all hospitals were “contract takers” in 1996, some hospitals are now “contract makers or breakers.” The negotiating leverage of other hospitals has improved as well, although less dramatically. Two types of evidence support this conclusion. First, serious contract disputes were much more frequently reported in 2000 compared with 1996. The prevalence of these disputes across diverse markets signals hospitals' increased willingness to exercise market power, as well as their assessment that they have the ability to do so given current market conditions. We observed contentious disputes in 7 out of 12 markets, and reports of other serious contract disputes throughout the country have appeared in the trade literature (for example, see Benko and Bellandi 2001). In some cases, hospitals terminated contracts, a behavior unheard of in the mid-1990s. Second, different types of respondents all perceived that hospitals were “winning” disputes. They noted that hospitals have been able to secure payment rate increases and significantly influence other contract terms. While there is variation across markets and within the hospital sector, a major change over the past five years is that many hospitals are now willing, and successfully able, to exercise market power in contract negotiations. We argue that between 1996 and 2000, significant changes in three areas converged to increase hospitals' market power: the policy and purchasing context in which plan–provider contract negotiations take place, the managed care plan market, and the hospital market. We identify specific changes in each of these three areas noted by interview respondents and largely supported by secondary quantitative data and describe how they impact hospitals' negotiating leverage with plans. Our findings are consistent with prior research. Many previous studies documented factors that result in plans' increased negotiating leverage with hospitals. This recent, longitudinal study shows that many of these factors are still important but that the direction of change has reversed, shifting market power back to many hospitals. These findings also provide insight into why hospitals are now more willing to exercise market power; hospitals may have had some ability to exercise market power several years ago but they did not use it. Recently, hospitals' increased financial distress and a sense of opportunity converged, leading them to exercise their leverage with plans.

This article reviews the recent research, policy and conceptual literature on the effects of payment policy reforms on evidence-based clinical decision-making by physicians at the point-of-care. Payment reforms include recalibration of existing fee structures in fee-for-service, pay-for-quality, episode-based bundled payment and global payments. The advantages and disadvantages of these reforms are considered in terms of their effects on the use of evidence in clinical decisions made by physicians and their patients related to the diagnosis, testing, treatment and management of disease. The article concludes with a recommended pathway forward for improving current payment incentives to better support evidence-based decision-making.

Despite the growth of managed care in the United States, there is little information about the arrangements managed-care plans make with physicians.In 1994 we surveyed by telephone 138 managed-care plans that were selected from 20 metropolitan areas nationwide. Of the 108 plans that responded, 29 were group-model or staff-model health maintenance organizations (HMOs), 50 were network or independent-practice-association (IPA) HMOs, and 29 were preferred-provider organizations (PPOs).Respondents from all three types of plan said they emphasized careful selection of physicians, although the group or staff HMOs tended to have more demanding requirements, such as board certification or eligibility. Sixty-one percent of the plans responded that physicians' previous patterns of costs or utilization of resources had little influence on their selection; 26 percent said these factors had a moderate influence; and 13 percent said they had a large influence. Some risk sharing with physicians was typical in the HMOs but rare in the PPOs. Fifty-six percent of the network or IPA HMOs used capitation as the predominant method of paying primary care physicians, as compared with 34 percent of the group or staff HMOs and 7 percent of the PPOs. More than half the HMOs reported adjusting payments according to utilization or cost patterns, patient complaints, and measures of the quality of care. Ninety-two percent of the network or IPA HMOs and 61 percent of the group or staff HMOs required their patients to select a primary care physician, who was responsible for most referrals to specialists. About three quarters of the HMOs and 31 percent of the PPOs reported using studies of the outcomes of medical care as part of their quality-improvement programs.Managed-care plans, particularly HMOs, have complex systems for selecting, paying, and monitoring their physicians. Hybrid forms are common, and the differences between group or staff HMOs and network or IPA HMOs are less extensive than is commonly assumed.

Background:Fordecades,reformersarguedthatmedical groups can efficiently provide high-quality care and acollegialprofessionalenvironment.Thegrowthofmanaged care and the movement to improve quality provide additional reasons for physicians to practice in groups, especially large groups. However, information is lacking on recent trends in group size and the benefits of and barriers to group practice. Objectives:To identify benefits of and barriers to large medical group practice, and to describe recent trends in group size. Design, Setting, and Participants: Information on benefits and barriers was obtained from 195 interviews conducted during round 3 (2000-2001) of the Community Tracking Study with leaders of the largest groups, hospitals, and health insurance plans in 12 randomly selected metropolitan areas. Information on recent trends in group size was obtained from more than 6000 physicians in private practice in 48 randomly selected metropolitan areas via Community Tracking Study telephone surveys in 1997-1998, 1998-1999, and 2000-2001. Main Outcome Measures: Benefits of and barriers to large group practice, as perceived by interviewees, and changes in percentages of physicians in groups of varying sizes. Results: Gaining negotiating leverage with health insurance plans was the most frequently cited benefit; it wascited8timesmoreoftenthanimprovingquality.Lack ofphysiciancooperation,investment,andleadershipwere the most frequently cited barriers. Survey data indicate that 47% of private physicians work in practices of 1 or 2 physicians and 82% in practices of 9 or fewer, and that the percentage of physicians in groups of 20 or more did not increase between 1996 and 2001. Conclusions: Current payment methods reward gainingsizetoobtainnegotiatingleveragemorethantheyreward quality. However, barriers to creating large medical groups are substantial, and most private physicians continue to practice in small groups, although the size of these groups is slowly increasing. Arch Intern Med. 2003;163:1958-1964

For more than a century, physicians in private practice in the United States maintained autonomy from hospitals, using the facilities as their “workshops” in mutually beneficial arrangements with no formal financial ties (Pauly and Redisch 1973; Starr 1982; Stevens 1989). With the rapid growth of health maintenance organizations (HMOs), selective contracting, global capitation, and other provider risk-sharing arrangements from the late-1980s to the mid-1990s, many physicians and hospitals developed new and more closely aligned financial and legal relationships, often emphasizing primary care physician (PCP) services. Hospitals anticipated that close affiliation with or employment of PCP gatekeepers would enhance their market power, help them capture capitation contracts, and help them manage costs under these contracts. In the past few years, interest in these selective HMO networks and in risk contracting has declined, as expectations for the future growth of managed care have waned and an emphasis on fee-for-service payments has returned. To date, there is no nationally representative information available on recent developments in hospital–physician relationships in the new market environment. This paper discusses findings from the third round of the Community Tracking Study's (CTS) biannual site visit interviews, conducted in 2000 and 2001, with hospitals and physician organizations in 12 randomly selected metropolitan markets. We assess recent trends in hospital–physician relationships for the 12 markets as a whole, but also examine market-level variation in these trends, and identify key market characteristics associated with this variation. We find that hospitals are now focused on developing relationships with selected specialists in local markets—establishing joint ventures and enhancing hospital–specialist collaboration through clinical initiatives in high-profit service areas. Our interviews confirm general impressions and recent case study evidence of the reduced focus on hospital–PCP arrangements (see, for example, Engbert and Emery 1999 and Ray and Kirz 2000). However, most hospitals in the 12 visited markets continue to own PCP practices. Primary care ownership remains especially prevalent in highly consolidated hospital markets, where PCP groups are reluctant to be independent of major systems and where the systems themselves worry about losing patient referrals to competing systems by divesting from these practices. Emerging hospital–physician relationships represent both the old and the new in today's markets. Efforts to build clinical ties between hospitals and specialists appear to be a return to a previous era, while formal financial arrangements, such as joint ventures, are more of a contemporary development. Thus far, hospitals are keeping their existing PCP practices, but are looking at new ways to make them financially viable.

The transfer of financial risk from health maintenance organizations (HMOs) to providers is controversial. To provide timely national data on these practices, we conducted a telephone survey in 1999 of a multi-staged probability sample of HMOs in 20 of the nation's 60 largest markets, accounting for 86% of all HMO enrollees nationally. Among those sampled, 82% responded. We found that HMOs' provider networks with physicians, hospitals, skilled nursing homes, and home health agencies are complex and multi-tiered. Seventy-six percent of HMOs in our study use contracts for their HMO products that involve global, professional services, or hospital risk capitation to intermediate entities. These arrangements account for between 24.5 million and 27.4 million of the 55.9 million commercial and Medicare HMO enrollees in the 60 largest markets. While capitation arrangements are particularly common in California, they are more common elsewhere than many assume. The complex layering of risk sharing and delegation of care management responsibility raise questions about accountability and administrative costs in managed care. Do complex structures provide a way to involve providers more directly in managed care, or do they diffuse authority and add to administrative costs?

Provider organizations have evolved to function as intermediaries between managed care plans and individual providers. These organizations assume much financial risk and care management responsibilities. We profile the characteristics of these organizations in markets across the country. The data, taken from a 1999 telephone survey of sixty-four entities in twenty markets and from interviews conducted during site visits to four markets, highlight the youth of many of these organizations, the large financial risk and functional responsibilities they bear, and the mixed views they hold about the health plans they contract with in terms of their willingness to delegate the authority, support, and collaboration that accompany risk. Policymakers need to evaluate what this means for oversight of managed care.