The growth in market-based contracting and the ascendency of managed care have generated substantial change in the health care delivery system. These reforms were spurred largely by private health care purchasers seeking a means for controlling the relentless growth in medical care costs. Following the private sector’s lead, the two large public programs, Medicaid and Medicare, have also looked to managed care for solving their mounting expenditure problems. Increased reliance on competition, and the growing rejection of rate regulation, have fundamentally re-shaped the health care delivery system and raise several important policy issues. Market-based contracting places a premium on the ability of health plans to control the growth in prices and use of services, resulting in continued merger and consolidation among health plans. At the same time, providers have recognized the competitive bargaining advantages in negotiating with health plans through their own consolidation and mergers. Unanswered in the managed care revolution is the means for financing care for the 41 million uninsured Americans. Moreover, whether the private and public sector are willing, or need, to finance the training of young physicians also hangs in the balance.

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