The public is very suspicious and fearful that managed care threatens their health because of its interest in reducing costs. Because physicians’ decisions control 75 percent of all health care spending, managed care organizations are focusing their cost-cutting strategies on influencing physician decision making through financial incentives and guidelines. These two techniques have had some important contributions, especially in enhancing efficiency and standardizing care to a high level. Nevertheless, they pose a threat—and are perceived by the public to pose a threat—to patients’ health and well-being. How can we mitigate the threats to patient welfare posed by financial incentives and guidelines? We propose and analyze six safeguards. These safeguards are not an attempt to revive the fee-for-service system, but an effort to make managed care ethical and to focus it on improving patient welfare. They are designed to work together to ensure that patient welfare remains the primary focus of managed care organizations; they try to create institutional structures that emphasize quality over mere cost reductions.

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