Changes in Medicaid Physician Fees and Patterns of Ambulatory Care

Decker, Sandra L., Inquiry

Controlling for state fixed effects and other factors, this paper estimates the effect of the generosity of Medicaid physician payment levels on the volume and site of ambulatory care received by Medicaid patients compared to privately insured patients. Results indicate that cuts in Medicaid physician fees lead to statistically significant reductions in the number of visits for Medicaid patients compared to privately insured patients. Cuts in fees also lead to a statistically significant shift away from physician offices and toward hospital emergency departments and especially outpatient departments. Primary diagnoses for which site of care shifts are most pronounced include hypertension, asthma, urinary tract infections, and diabetes.

**********

In 2003, Medicaid provided health insurance coverage to 39 million children and adults in low-income families, in addition to assisting 8 million low-income people with disabilities and 7 million elderly and disabled Medicare beneficiaries (Rowland 200512006). States have wide latitude in setting provider payment rates for Medicaid recipients not on Medicare, and provider payment levels vary greatly by state. Medicaid prohibits cost sharing on services for children and allows only nominal cost-sharing amounts for adults. Thus, other than time costs for Medicaid patients, a binding constraint on the amount of care that Medicaid patients receive is likely to be physicians' decisions about whether to treat them--a decision influenced by the fees a state offers a physician for treating a Medicaid patient.

Physicians facing reduced Medicaid fees are likely to reduce the quantity or intensity of services supplied to Medicaid patients (Gruber, Kim, and Mayzlin 1999; McGuire and Pauly 1991). Previous research generally has found a positive correlation between state Medicaid fees and the fraction of private physicians who treat Medicaid patients, though the evidence is mixed, with some studies estimating a small effect (Decker 1993, 2007; Sloan, Mitchell, and Cromwell 1978), some a large effect (Hadley 1979; Showalter 1997), and some no effect at all (Coburn, Long, and Marquis 1999; Zuckerman et al. 2004). If cutting fees does reduce the number of physicians willing to accept Medicaid patients, this may reduce the quantity of care Medicaid patients receive or lead them to seek care in hospital emergency departments or other sites. Previous evidence using data from the 1980s suggests that lower Medicaid physician fees do not affect the total number of times that a Medicaid patient visits a physician, but do affect the share of physician visits that take place in a private physician's office (as opposed to an emergency room or other hospital setting) (Baker and Royalty 2000; Cohen 1993; Long, Settle, and Stuart 1986).

Despite the fact that many states continue to cut or freeze fees in the event of fiscal downturns, little work has examined the effects of Medicaid physician fees using newer data; additionally, most past work has failed to control for a possible correlation between state-level measures of Medicaid payment generosity and other state-level attributes that affect use of health care services. This paper tests whether a state's level of Medicaid physician payment affects the volume of visits or site of care for Medicaid patients, compared to privately insured patients. By comparing the treatment of Medicaid patients to that of privately insured patients and by using state fixed effects, Medicaid's effect on the use of health care services is separated from any correlation between the Medicaid fee and other attributes of the state in which a patient lives.

Methods and Data

Data on Medicaid Physician Fees

Since the late 1980s, the fraction of the Medicaid caseload in Medicaid managed care organizations has risen steeply, though many states that have moved to Medicaid managed care have not chosen capitation. These states instead rely on primary care case managers that often continue to be paid on a fee-for-service basis. In 2001, over 60% of Medicaid enrollees in the United States received services in a fee-for-service or primary care case manager system (Zuckerman et al. 2004). Because capitated payments include fees to providers other than physicians and because coverage for physician services differs by state, Medicaid capitated payments may be a poor proxy for the generosity of payments to physicians (Shen and Zuckerman 2005). It therefore can be argued that a measure of prices paid directly to physicians captures variation across states in Medicaid's payment generosity to physicians better than capitated payment rates.

This paper uses data on state Medicaid fee-for-service physician fees to measure the generosity of physician payment levels. These data are obtained from periodic surveys of states conducted and published by the Urban Institute (Norton 1999; Zuckerman et al. 2004). In the absence of fee data for all services that physicians perform, the average Medicaid fee for several services is used as a proxy for the overall generosity of Medicaid physician payment by state. Specifically, the study uses the average state Medicaid fee for a sample of primary care services weighted by Medicaid physician spending shares for the 20 states with the largest Medicaid spending.1 Since Medicare fees are easily available, Medicaid fees are divided by the Medicare allowed charge for that service as a proxy for the fee that a physician could receive from treating a non-Medicaid patient. The resulting Medicaid-to-Medicare fee ratio is used as the measure of the relative generosity of state Medicaid physician payment in all analyses. This ratio may provide a relatively low estimate of the generosity of Medicaid fees compared to what a physician could "get by seeing a non-Medicaid patient since Medicare fees are lower on average compared to those of private insurance (Hogan 2005).

To examine physician responsiveness to Medicaid fees, it would be best to have a schedule of fees for all of the services that a physician performs. Unfortunately, the only available data on Medicaid fees consist of fees for selected services from periodic surveys of states. As would be expected, however, the Medicaid fees for different procedures are positively correlated. For example, the simple correlation coefficient between the average Medicaid-to-Medicare fee ratio for primary care services and for all services sampled ranges from .95 to .97 in 1993, 1998, and 2003. To the extent that Medicaid fees for different procedures are positively correlated, a measure of the state's reimbursement generosity for one type of office visit should capture much of the variation in a physician's incentive to treat Medicaid patients.

Under Medicaid's administered pricing system, the state sets specific prices for each service performed by physicians. Most states set fees below those of other payers, and typically do not update these fees very often. As a result, the use of fixed prices has reduced the rate of increase in Medicaid physician payment levels compared to those of other payers. Table 1 shows Medicaid-to-Medicare fee ratios in the three years--1993, 1998, and 2003--for which they were available from the Urban Institute (Norton 1999; Zuckerman et al. 2004). All analyses in the paper are restricted to the 39 states that provided fee data in each of these years. (2) As can be seen from the table, Medicaid fees for primary care in 2003 were lower than Medicare fees in all states in the sample, and were substantially lower in many states. In 2003, New Jersey and Rhode Island had fee ratios of about .34--Medicaid paid only about one-third of what Medicare paid for the same service. Although Table 1 indicates that Medicaid fees were generally low in 2003, the pattern of change in fees between 1993 and 2003 varied considerably by state. For example, the Medicaid-to-Medicare fee ratio fell by more than 10% in 19 states during this 10-year period, and rose by more than 10% in eight states. This paper tests the effect of these changes on the volume of visits and site of care of Medicaid patients.

Data on Number of Physician Visits

Data on Medicaid fee ratios in 1993, 1998, and 2003 were merged by state with person-level data on the self-reported total number of physician visits in the past year in a doctor's office, clinic, or other place from the National Health Interview Survey (NHIS), a continuing national household survey of the civilian, noninstitutionalized population conducted by the National Center for Health Statistics (NCHS). The NHIS follows a stratified probability sample design. The sample design both before and after a 1995 redesign is described elsewhere (Massey et al. 1989; NCHS 1999). Data for two years of the NHIS were pooled for each year that state Medicaid physician fee data were available. For 1993 and 1994, data were included from the core NHIS interviews as well as supplements on health insurance and access to health care. Observations from the first half of 1993 were not used because information on health insurance coverage (available from the health insurance supplement to the standard NHIS questionnaire) and the number of physician visits during the past year (available from the access to care supplement) was not obtained during the first half of 1993. The NHIS questionnaire was redesigned in 1997, and data on insurance status and other variables after 1997 come from a core person file, while information on the number of physician visits in each year comes from the sample adult and sample child files, which contain information for one sampled adult and one sampled child from each household, respectively.

There are …

Questia, a part of Gale, Cengage Learning. www.questia.com
Publication information: Article title: Changes in Medicaid Physician Fees and Patterns of Ambulatory Care. Contributors: Decker, Sandra L. - Author. Journal title: Inquiry. Volume: 46. Issue: 3 Publication date: Fall 2009. Page number: 291+. © Not available. COPYRIGHT 2009 Gale Group.

This material is protected by copyright and, with the exception of fair use, may not be further copied, distributed or transmitted in any form or by any means.