Physician Response to a Change in Medicaid Fees

Abstract

This study examines the effects of a change in Medicaid fees on the volume of physician services provided to beneficiaries. The data set includes price and volume at the procedure-level for Medicaid physician services in Texas in 1991, 1993, and 1995. The empirical analysis compares the volume of services provided to Medicaid participants before and after a 1992 change in reimbursement method. The results indicate that, over the period 1991 to 1993, the change in Texas Medicaid physician fees did not have a statistically significant effect on the volume of services provided. When measured over a longer period of time (1991–1995), however, volume increased significantly when price decreased, but, when price increased, there was no significant effect on volume. The results thus provide empirical support for the behavioural offset assumption underlying the switch to Medicare's Resource-Based Relative Value Scale (RBRVS) method of physician payment. A key policy implication is that reduced fees did not lead to a lower volume of physician services provided to Medicaid patients at least over the period of analysis. However, the new Medicaid fee schedule did not have the desired effect of controlling Medicaid expenditures on physician services.