Controlling the rising medical expenses is am important matter to maintain the stability of a country's medical protection system. It is also a common task faced by all nations. How to manage the medical costs, provide adequate access to medical treatment and maintain good quality of medical services under an effective mechanism is challenge to the existing medical systems of all nations. In the health insurance market, because of highly specialized medical services and the nature of third party payment, moral hazard has become one of the factors causing the rising medical costs. Managed Care, origined from the US, is a unique system which combines the financing and delivery of health care. Managed care organizations utilize multiple mechanism to manage the expenses of providers of medical services and was proven to be effective. This article explores the moral hazard of health care market and found it is necessary to control medical costs from both the supply and demand sides. At same time we introduce managed care payment methodologies for hospital and physicians, also apply the game model to explore the maximum benefits during negotiation between hospital and managed care organization.