Medicaid Fees and the Medicare Fee Schedule: An Update

By Norton, Stephen A. | Health Care Financing Review, Fall 1995 | Go to article overview
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Medicaid Fees and the Medicare Fee Schedule: An Update

Norton, Stephen A., Health Care Financing Review

This study analyzes changes in Medicaid physician fees from 1990 to 1993. Data were collected on maximum allowable Medicaid fees in 1993 and compared with similar 1990 Medicaid data as well as the fully phased-in Medicare Fee Schedule (MFS). The results suggest that, on average, Medicaid fees have grown roughly 14 percent, but considerable variation continues to exist in how well Medicaid programs pay across types of services, States, and census divisions. Medicaid fees remain considerably lower (27 percent for the average Medicaid enrollee) than fees under a fully phased-in MFS. Medicaid fees for primary-care services were, on average, 32 percent lower


Since the Medicaid program's inception, policymakers have been concerned with the factors that determine physicians' decisions to participate in Medicaid and the implications of these factors for access. Sloan, Cromwell, and Mitchell (1978) were among the first to document the relationships between physician participation in Medicaid and Medicaid fee levels, the level of Medicaid fees relative to other markets, and administrative costs created by Medicaid bureaucratic obstacles. Mitchell (1991) and Perloff, Kletke, and Necherman (1987) substantiated these results with more recent evaluations, which found that physician participation decisions were related to both Medicaid fee levels and such fee levels relative to other insurance programs. Despite the recognition of the importance of Medicaid fee levels in physician participation decisions, however, relatively little is known about recent changes in Medicaid fees and how they compare with other payers.

Understanding recent changes in Medicaid fees is of particular importance for two reasons. First, through a series of legislative actions beginning with the Omnibus Budget Reconciliation Act (OBRA) of 1987, the Federal Government has mandated that States provide services to pregnant women and children with incomes up to 133 percent of the Federal poverty level. Although the Medicaid expansions have provided insurance coverage to a large pool of low-income pregnant women and children, these expansions in coverage may only translate into increased access if physician fees are high enough to ensure that physicians participate in the Medicaid program. Recognizing this, OBRA 1989 required that States provide payment rates adequate to ensure access for this growing pool of eligible individuals. However, there is little documentation of the magnitude of increases in Medicaid fees since 1990. Although recent concerns regarding access have focused on the most vulnerable populations - pregnant women and children (Dubay et al., 1993; Kenney and Dubay, 1995) - these concerns are valid for all Medicaid-eligible populations.

Second, many States are now using or are contemplating using the resource-based relative value scale (RBRVS) for Medicaid payment. States can adopt Medicare's conversion factors, which convert relative values into payment rates, but this might be costly for some States. Holahan, Wade, and Gales, (1993) found, for example, that the adoption of the MFS in 1990 would have increased Medicaid costs substantially. Alternatively, States could set their conversion factors to maintain current payment levels. However, in the event that States attempt to maintain budget neutrality and Medicaid fees remain low relative to other payers, States may find themselves in the untenable position of being forced to increase Medicaid fees to ensure access.

This study uses Medicaid fees in 1990 and 1993 and information on what fees would be under a fully phased-in MFS to provide policymakers with more recent documentation of trends in Medicaid fee levels. Updating work by Holahan (1991), this article provides information on the variation in physician fees across the country, describes changes in Medicaid fees from 1990 to 1993, and evaluates 1993 Medicaid physician fees relative to other insurance markets by comparing them with fully phased-in MFS fees.

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Medicaid Fees and the Medicare Fee Schedule: An Update


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