Important differences in labor market characteristics suggest that men and women physicians may be viewed as imperfect substitutes in the labor market. Concerns about efficiency and cost-cutting, which have led to the adoption of managed care practices, may have (unintentionally) favored female physicians. Using data from the Young Physicians Survey, the author compares changes in the gender earnings gap for physicians in states with high versus low managed care growth during the 1980s. She finds that the gender gap in hourly earnings among physicians in states with high managed care growth narrowed by 10 percentage points relative to states with low managed care growth. Moreover, Census data show that this finding holds only for physicians and not for other professions requiring advanced degrees. Further analysis shows that managed care appears to affect the relative earnings of male and female physicians by compressing the overall distribution of physician earnings. Together, these results suggest that the spread of managed care has been a factor in improving the relative earnings of female physicians. More broadly, these results suggest that market changes can have important consequences for the gender earnings gap when there are large pre-existing differences between men and women within a profession.