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A CEO of a renowned acute care facility echoes what many in the healthcare industry are experiencing: "At no time in my memory are we changing so much so fast ... with so little time in which to make changes." The once mighty fortress of the healthcare industry has been invaded by a Trojan horse: managed care. Consequently, managed care has become the primary impetus for industry change. Managed care penetration has increased dramatically over the past few years, and all indications point to its continued growth throughout the US. In 1995, 71% of employees covered under an employer-sponsored health plan received their care through a managed care arrangement (health maintenance organization, preferred provider organization, point of service plan) and only 29% were covered under a traditional indemnity plan. In contrast, 52% of employees had indemnity plans in 1992. Managed care is growing in the public sector as well. Government-sponsored programs such as Medicare and Medicaid increasingly rely on managed care to help control costs and utilization. Though Medicare managed care enrollment today represents only about 10% of the Medicare population, enrollment has more than doubled between 1990 and 1995. Almost every state has some form of Medicaid managed care program in place. Fifteen states have received waivers to mandate that recipients receive care through managed care arrangements, and an additional ten states await federal approval to do the same. Between the years 1993-95, the number of Medicaid beneficiaries enrolled in managed care plans increased 140% to a national enrollment of close to 12 million. In addition to factors in the healthcare field such as uncompensated care, increased outpatient services, excess bed capacity, and restrictions in government reimbursement, the shift to managed care has forced hospitals to find new ways to operate within the healthcare delivery system. In particular, because hospitals' human resource costs are a substantial portion of their budgets, compensation policies are an important component of managing the cost of day-to-day operations. The 1996 Coopers & Lybrand Compensation in the Healthcare Industry Survey summarizes the responses from 207 healthcare organizations, primarily hospitals, in terms of their efforts to survive this constantly changing environment. Respondents included acute care and specialty hospitals, community-based hospitals, academic medical centers, public, and private organizations. The survey addresses operational issues, compensation incentives, special pay, and other compensation-related programs. This article analyzes the results of the Coopers & Lybrand survey.