OBJECTIVES. This research assesses the impact of managed care on the physician's efficient use of hospital resources. It examines three questions. (1) Does a higher percentage and volume of managed care patients in the physician's hospital practice lead to more efficient utilization? (2) Do physicians shift cost to nonmanaged care patients in an effort to compensate for lower reimbursement for managed care patients? (3) Are there threshold effects in the percentage and volume of managed care patients treated by physicians? METHODS. The study combines patient discharge data from the state of Arizona with physician and hospital data for a 2-year period. Random effects maximum likelihood (REML) regressions were performed for four different diagnosis classifications to examine the effect of the physician's managed care caseload on mean-adjusted charges and length of stay. RESULTS. The findings suggest that physicians with high percentages and volumes of managed care patients in their hospital practice are more efficient in using hospital resources. The findings also suggest that physicians may compensate for the lower reimbursement from managed care patients by increasing their resource use among non-health maintenance organization patients. CONCLUSIONS. Finally, there appears to be a threshold effect of managed care activity on the physician's hospital utilization in one of the conditions studied.