Supplementing managed competition

President Clinton's proposal for health care reform calls for managed competition within global expenditure targets. However, it is unlikely that health plans will have sufficient leverage with providers to negotiate arrangements consistent with expenditure targets in nonurban areas. This paper describes a reimbursement system based on competitive prospective payment and capitation (CPPC) which can supplement managed competition in less populous areas or replace managed competition should that strategy prove unsuccessful. The CPPC system is capable of enforcing an expenditure target while encouraging the formation of capitated networks and creating strong incentives for efficiency. It is generally compatible with the Clinton administration's version of managed competition.