The current status of managed health care is described and its impact on hospital and pharmacy operations is summarized. In the 1980s, managed care evolved into a three-segment industry, comprising health maintenance organizations (HMOs), preferred-provider organizations, and fee-for-service plans. Five new trends are emerging as managed care, now an established part of the country's health-care delivery system, enters its second generation: dual- and triple-option plans with financial risk sharing between employers and insurers/HMOs, point-of-service determination of benefits and coverage, consolidation of the number of options offered by employee health plans, creation of exclusive provider organizations, and direct provider contracting. Persons charged with negotiating managed-care contracts will make use of three primary cost-management methods: benefit design, provider reimbursement, and prospective pricing. Employees will take an increasingly active part in purchase decisions. Enrollees will face tradeoffs between their desire for maximum freedom of choice of provider and higher premiums, deductibles, and out-of-pocket expenses. Managed-care plans will continue to have a strong impact on hospitals, especially in the areas of reimbursement and use review. The effect of managed care on pharmacy operations will vary from institution to institution; among the positive results may be increased appreciation of the role of clinical pharmacy services in reducing the incidence of readmissions and the length of hospital stays. The result of these changes in the structure of health-care benefits will be greater price sensitivity, marked by a suppression of unnecessary use of health-care services and an increased tendency to compare and evaluate health-plan costs.