The Effect of Managed Care on the Pharmaceutical Industry

Abstract

The pharmaceutical industry has transformed itself in response to the growth of managed care, which developed as a method to contain the costs of health care. Under the traditional fee-for-service system of practicing medicine, doctors practiced medicine without incentives to reduce the costs imposed on patients, their insurers, and the health care system. Most doctors practiced independently and were reimbursed for each service rendered by passive insurance companies. Shielded from the oversight of third-party intermediaries, doctors had financial incentives to provide more services, regardless of whether those services were therapeutically necessary.