MCOs face different incentives and a different market for physicians. Whereas hospitals have to compete for patients indirectly by persuading physicians to admit them, MCOs compete for patients directly by convincing employers to lock their employees into the MCOs plan. The MCO controls directly who can treat the patients and what can be done to them. The MCO needs some physicians to care for the patients, and many MCOs have obtained these physicians by buying their practices. Since MCOs reduce the care that patients receive, an MCO-dominated community needs relatively fewer physicians than it did when the patients had traditional health insurance. This ensures a surplus of physicians and limits the physicians’ bargaining power. The objective of the MCO is to reduce the number of physicians to the minimum necessary to care for the patients, and to ensure that the physicians it retains deliver the most cost-effective/cheap care. [Blum JD. The evolution of physician credentialing into managed care selective contracting. Am J Law Med. 1996;22:173–203.]

The strategy is simple: hire or contract with more physicians than you need, then do not renew the contracts of the ones that spend the most resources on patient care. As long as the MCO–physician contracts are terminable at will, the physicians have no recourse. Any physicians who resist cost-cutting strategies that they believe compromise patient care are dropped from the plan. Their only protections are state laws such as the “any willing provider” law that forces MCOs to deal with all physicians in the community.