By the end of 1989 more than 100 million Americans were covered by preferred provider organizations and health maintenance organizations, health insurance plans that contract selectively, yet very little is known how this dramatic change is affecting physician behavior. This study will use unique data from three annual surveys of the physician fee schedules negotiated by PPOs and HMOs to assess their effectiveness in moving physician prices towards costs and in constraining the rate of growth in fees. The analysis is split into three parts. We will first study the relationship between the physician fees derived from charge data, """"""""usual, customary and reasonable"""""""" (UCR) and the market share of HMO/PPO plans in the area. We will then compare the rates of growth of UCR to negotiated fees. Finally, we will test whether the negotiated fee structure is converging to the RBRVS values. The results of this study will provide insight into the effectiveness of selective contracting plans, HMOs and PPOs, in reducing the rate of growth of physician prices, and therefore partially at least, in expenditures for physician services. It will provide an early indication of the applicability of competitive models to health care markets.