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March 19, 1997

Managed Care and Merger Mania

Author Affiliations

From the Departments of Economics and Health Research and Policy, Stanford University, Stanford, Calif.

JAMA. 1997;277(11):920-921. doi:10.1001/jama.1997.03540350070036

The ascendancy of managed care and the concomitant stampede to consolidation of health care organizations through mergers and acquisitions are transforming the body and soul of American medicine. Not long ago, insured patients could choose freely among available providers, physicians' decisions were rarely questioned by insurers, most physicians practiced solo or in small groups and were reimbursed fee-for-service, and most hospitals were stand-alone organizations reimbursed retrospectively according to their average costs. Today under managed care, purchasers selectively contract with providers, patients face financial penalties if they seek care "out of plan," fees and prices are negotiated in advance, physicians' decisions are subject to outside review and management, and providers often share in the insurance risk. Moreover, the locus of care has shifted dramatically toward consolidated organizations.

What explains the triumph of managed care and consolidation over traditional modes of finance and organization? Will current trends continue, and if so,

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