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The perceived relationship between primary care physician compensation and utilization of medical services in medical groups affiliated with one or more among six managed care organizations in the state of Washington was examined. Representatives from 67 medical group practices completed a survey designed to determine the organizational arrangements and norms that influence primary care practice and to provide information on how groups translate the payments they receive from health plans into individual physician compensation. Semistructured interviews with 72 individual key informants from 31 of the 67 groups were conducted to ascertain how compensation method affects physician practice. A team of raters read the transcripts and identified key themes that emerged from the interviews. The themes generated from the key informant interviews fell into three broad categories. The first was self-selection and satisfaction. Compensation method was a key factor for physicians in deciding where to practice. Physicians' satisfaction with compensation method was high in part because they chose compensation methods that fit with their practice styles and lifestyles. Second, compensation drives production. Physician production, particularly the number of patients seen, was believed to be strongly influenced by compensation method, whereas utilization of ancillary services, patient outcomes, and satisfaction are seen as much less likely to be influenced. The third theme involved future changes in compensation methods. Medical leaders, administrators, and primary care physicians in several groups indicated that they expected changes in the current compensation methods in the near future in the direction of incentive-based methods. The responses revealed in interviews with physicians and administrative leaders underscored the critical role compensation arrangements play in driving physician satisfaction and behavior.

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