Managed Care and Physician Location Decisions

Escarce and colleagues (1998) examined the effects of rapid Health Maintenance Organization growth on the location decisions of young physicians. They had data on physicians who had completed their graduate medical education between 1989 and 1994 and decided to practice in a U.S. metropolitan area with a population of one-half million or more.

Early in the study period, they found that new generalist physicians were more likely to locate in metropolitan areas with high Maintenance Organization penetration, while specialists were apparently unaffected by Maintenance Organization presence. This is consistent with work by Simon, Dranove, and White (1998), who found that higher managed care penetration over this period was associated with higher primary care incomes but not related to specialist incomes.

By the end of the period, however, the Escarce team found that greater Maintenance Organization market share was associated with a small but statistically significant reduction in the probability that a new primary care physician would locate in the metropolitan area, and also with a large and significant reduction in the probability that specialists would locate in the metropolitan area.

Escarce et al. (2000) expanded on the earlier study to examine the effects of Maintenance Organization penetration across all 316 U.S. metropolitan areas. They looked at all active patient care physicians and over a longer time period, 1986 through 1996. They found that, overall, Maintenance Organization penetration did not affect the number of generalist physicians or hospital-based physicians, but faster Maintenance Organization growth did result in smaller increases in the number of specialists. Faster Maintenance Organization growth also led to greater increases in the proportion of physicians who were generalists. Escarce and colleagues estimated that a 10 percentage point increase in the Maintenance Organization market share between 1986 and 1996 reduced the rate of increase in specialists by over 10 percent and that of total physicians by 7.2 percent. Their study suggests that Maintenance Organization s were able to reduce the demand for physician services, particularly of specialists. Thus, there is some evidence that the supply of physicians and the mix of generalists and specialists did respond to the growth of managed care plans.