Finally, MCOs may be classified by how they reduce the cost of medical care below the premiums paid by the subscribers, that is, how they make money. Because MCOs have substantial administrative overhead, they must achieve substantial savings in physician, pharmacy, and hospital charges. This may occur in three ways: (1) reducing the price the MCO pays to providers, such as physicians and hospitals; (2) limiting access to care or shifting to cheaper care than would have been provided outside the MCO; or (3) in noninsurance company MCOs, providing more services that are profitable and fewer services that are not. All these strategies affect physician decision making. These changes are not always adverse to the patient’s interests. One major effort of MCOs has been to reduce the profitability of Cesarean sections. This reduces the financial incentive to do them, which benefits patients who can deliver vaginally, but might otherwise be delivered surgically. [Centers for Disease Control and Prevention. Rates of Cesarean delivery—United States, 1993. MMWR Morb Mortal Wkly Rep. 1995;44:303.]

MCO incentives are meant to counter traditional fee-for-service reimbursement incentives, which encourage physicians to provide more care for each patient, thus driving up the cost of care. Under managed care, physicians are encouraged to see patients more quickly, to use fewer tests and specialty referrals, to use less expensive drugs (and to let nonphysicians choose those drugs), and to keep patients out of the hospital. MCOs promise employers that cost-conscious physicians will provide better and cheaper care. Physicians who do not deliver cost-effective care generally are not allowed to continue to treat MCO patients. [Blum, JD. The evolution of physician credentialing into managed care selective contracting. Am J Law Med. 1996;22:173, 189–192. ]

As discussed later, the denial of medically necessary care can put the physician in a legal quandary. However, it is the hidden incentives to deny care that pose the starkest conflict between the interests of physicians and those of their patients. These can breach the physician’s fiduciary duty to the patient, which is actionable on its own, as well as support criminal law actions for fraud.