No Mass Departure: Physicians and Managed Care Networks

Tracking Report No. 14
May 2006
Ann S. O'Malley, James D. Reschovsky

Following a period of stability that began in 1996-97, the share of U.S. physicians who lack contracts with managed care plans increased from 9.2 percent in 2000-01 to 11.5 percent in 2004-05, based on a national study from the Center for Studying Health System Change (HSC). While doctors have not abandoned managed care networks in large numbers, this modest but statistically meaningful rise could signal a trend toward greater patient out-of-pocket expenses and diminished patient access to physicians. The growth in physicians without managed care agreements was broad-based, spanning specialties and other physician and practice characteristics. Compared with doctors who hold one or more managed care contracts, those without such contracts are more likely to have practiced for over 20 years, work part time, lack board certification, practice solo or in two-physician groups, and be located in the western United States. The study also revealed considerable variation in the proportion of physicians without managed care contracts across communities, indicating that local market dynamics influence contracting decisions.

Despite Physician Frustrations, Most Continue Contracting with Managed Care Plans

Media reports frequently feature anecdotal stories of physicians withdrawing from health insurance networks or refusing new managed care patients. The widespread belief that doctors were leaving insurance networks at "alarming rates" prompted a congressional hearing in 2004. According to reports, physicians are frustrated by the costly and time-consuming administrative requirements and low reimbursement levels associated with health insurance contracts, encompassing health maintenance organizations (HMOs), preferred provider organizations (PPOs), and other managed care structures.

Although the vast majority of doctors continue to participate in insurer networks, the national proportion of physicians without a managed care contract grew from 9.2 percent to 11.5 percent between 2000-01 and 2004-05, according to HSC's Community Tracking Study Physician Survey. Over that same period, the number of practicing U.S. physicians expanded from 379,000 to 397,000, yielding an estimated 45,600 physicians in 2004-05 without any managed care contracts, up from approximately 35,000 in 2000-01.

The rise among physicians without managed care contracts was consistent with increases in the share of doctors reporting their practice received no managed care revenue at all. Among physicians who maintained at least one managed care contract, the average number of contracts held steady at 13, as did the average percentage of practice revenue derived from managed care arrangements (44%).

Physicians who choose not to participate in managed care plans have several options: treating only patients covered by insurance products without provider networks (including fee-for-service Medicare), running cash-only practices, and serving managed care patients as out-of-network providers who can balance bill patients for charges exceeding insurer reimbursements. In this last scenario, doctors might continue to file claims with managed care plans or shift the responsibility for insurer interactions to the patients. So-called "concierge" or "boutique" practices typically fall into one of these categories, often requiring patients to pay a substantial retainer in exchange for enhanced access.

Numerous Factors Shape Contracting Decisions

While physicians can opt out of managed care plan contracts, sometimes the plans themselves decline to contract with certain doctors -- either because they fail to meet credentialing requirements, such as board certification in their specialty, or because the physician is considered to have expensive practice patterns or deliver substandard care.

Likely reasons doctors may choose to forgo managed care contracts include patient demand for their services, plan reimbursement levels, desire for clinical independence, and administrative hassles tied to managed care agreements. These factors also play into decisions about which specific plans to contract with. Consequently, individual physicians are likely to make varying decisions about managed care participation based on their reputation, how much they need to compete for patients, their preferences regarding income versus clinical autonomy, and the willingness and ability of their patients to bear higher out-of-network costs. Similarly, patients enrolled in managed care plans may seek out-of-network physicians for a variety of reasons, including perceived higher quality of care, travel distance, and the wish to maintain continuity with a specific doctor after a plan or network change.

The rising share of physicians without managed care contracts may partly reflect the declining number of privately insured patients in HMO plans that provide no coverage for out-of-network care. At the same time, enrollment in plans that cover some portion of out-of-network costs -- PPO and point-of-service (POS) plans -- increased by 13 percentage points between 2000 and 2005, displacing both HMO and indemnity insurance. By 2005, more than three-quarters of workers with employer health coverage were enrolled in a PPO or POS plan.

Profile of Physicians Outside Managed Care

The increase in the proportion of physicians without a managed care contract was observed across a wide range of physician and practice characteristics. Examining the profiles of non-contracting doctors provides some insight into the underlying reasons they may avoid health plan agreements.

For example, physicians who lack board certification in their specialty -- only 11 percent of all doctors -- are roughly half as likely to hold managed care contracts compared with their board-certified peers, suggesting that failing to meet health plan credentialing standards is a contributing factor. Among doctors with managed care contracts, 8 percent lack certification, whereas among those without contracts, 16 percent are not certified.

Physicians in solo or two-doctor practices are less inclined to contract with managed care plans, possibly because of their higher overhead costs and difficulty managing administrative demands. Larger group practices and institution-based practices (such as medical schools or hospitals) are more likely to invest in the administrative infrastructure needed to handle health plan claims processing and clinical oversight. Solo and two-physician practices may also struggle to negotiate higher payment rates with health plans, as many larger practices are able to do.

Doctors with more than 20 years in practice are less likely to hold managed care contracts than those with 10 years or fewer of experience, suggesting that seasoned physicians may have built sufficient patient bases and reputations to practice successfully without managed care agreements. Some older physicians may also be winding down their practices, retaining only long-term patients and those willing to pay higher out-of-network fees. Notably, 23 percent of physicians in solo or two-person practices who are over 60 -- representing 7 percent of all doctors -- do not contract with managed care.

The rising percentage of physicians without managed care contracts extended across most specialties. The growth was generally modest, with one notable exception: obstetrician-gynecologists. In this specialty, the share without managed care agreements tripled to 11.8 percent in 2004-05, after holding steady at roughly 3.5 percent since 1996-97. In earlier years, OB-GYNs' rate of non-contracting was considerably lower than other specialties, but it has now converged with that of their colleagues.

Psychiatry has historically been the specialty with the highest proportion of physicians outside managed care networks. In 2004-05, 35 percent of psychiatrists lacked managed care contracts. This likely reflects both low reimbursement rates and the more intensive utilization management imposed by health plans and managed behavioral health companies that many psychiatrists encounter. It may also be linked to psychiatrist shortages in many regions.

Geographic Market Variation

There was notable variation in the share of physicians without managed care contracts across different communities, suggesting that local market conditions play a meaningful role in physician contracting decisions. Moreover, the patterns for primary care physicians frequently differ from those of specialists within the same community.

Other market conditions also seem relevant to physician contracting choices. Physicians are less likely to participate in managed care in communities where private health plan payment rates are relatively low. Additionally, doctors who reported facing minimal competition for patients were more inclined not to contract with managed care than those who described their competitive environment as very or somewhat intense. In contrast, contracting rates showed little difference across communities with low versus high HMO enrollment. Supplemental analyses indicate that primary care physicians appear to be less responsive to market conditions when making contracting decisions compared with specialists.

Implications

While it falls far short of a mass departure, the share of physicians without a managed care contract edged up to 11.5 percent in 2004-05, after holding at roughly 9 percent since 1996-97. At this point, it remains uncertain whether this small but statistically significant increase marks the start of a broader trend. Regardless, the rise likely reflects market shifts toward enrollment in plans that permit out-of-network care, such as PPOs, along with mounting physician frustration over the administrative demands and low reimbursement levels from health plans.

Patients who visit out-of-network physicians will typically face elevated out-of-pocket expenses and additional billing paperwork. Under balance-billing arrangements, patients seeing non-network providers are responsible for covering the gap between the "usual and customary" fee recognized by their insurer and the actual charge from the doctor. While patients who are willing to pay a premium for out-of-network care may enjoy enhanced access and more personalized encounters without third-party interference, these advantages could be offset by reduced access to physician care for the broader population. For patients who are high utilizers of health care services, seeing out-of-network providers could lead to substantial out-of-pocket spending, depending on their plan's out-of-pocket ceiling.

Although very few physicians who stop contracting are launching concierge practices, the growing number of non-concierge doctors who do not participate in managed care could mean that more patients find they can no longer afford to continue seeing their long-standing physicians. Together, these trends appear to reflect a widening divide in the health care system between the economically secure and the rest of American society.

Data Source

This Tracking Report draws on findings from the HSC Community Tracking Study Physician Survey, a nationally representative telephone survey of physicians involved in direct patient care in the continental United States, conducted in 1996-97, 1998-99, 2000-01, and 2004-05. The physician sample was drawn from the American Medical Association and the American Osteopathic Association master files and included active, nonfederal, office- and hospital-based doctors who devoted at least 20 hours per week to direct patient care. Residents, fellows, radiologists, anesthesiologists, and pathologists were excluded. The 1996-97, 1998-99, and 2000-01 surveys each collected data on approximately 12,000 physicians, while the 2004-05 survey encompassed more than 6,600 physician responses. Response rates ranged from 52 percent to 65 percent.

Sources and Further Reading

AMA: Physician Practice Benchmark Survey — National data from the American Medical Association on physician practice arrangements, including managed care participation rates and contract trends.

KFF: Employer Health Benefits Survey — Annual survey tracking trends in employer-sponsored insurance, including HMO, PPO, and POS enrollment shifts discussed in this research.

CMS: Managed Care Plan Information — CMS resources on Medicare managed care plan structures, credentialing requirements, and network adequacy standards relevant to physician contracting.

Health Affairs: Managed Care Research — Peer-reviewed research on managed care network dynamics, physician reimbursement levels, and the effects of network participation on patient access.

The Commonwealth Fund: Health System Performance Tracking — Comparative data on health insurance markets, physician workforce trends, and patient out-of-pocket costs across U.S. communities.