Health Practitioner Bonuses and Their Impact on the Availability and Utilization of Primary Care Services. 2. State-specific Experience on Changes in Medicaid Reimbursement Rates


To better understand the mechanism by which systemic changes in the Medicaid system will be implemented and the broad range of environments affected it is informative to review Medicaid changes at the state level. Zuckerman et al. (2004) illustrate that Medicaid physician fees increased, on average, by 27.4 percent between 1998 and 2003, with primary care fees growing the most. On average, the cumulative percentage change in the Medicaid primary care fee was about 41.2 percent between 1998 and 2003. The authors note that there was considerable variation in primary care fees across states. Seven states (District of Columbia, Georgia, Indiana, Kentucky, Maine, Rhode Island, and South Dakota) left primary care fees almost unchanged, while two states (Iowa and New York) raised them by more than 100 percent. States with the lowest relative fees in 1998 increased their fees the most, but almost no states changed their position relative to other states or Medicare, since Medicare rates also increased over the period. Subsequently, the study finds that primary care physicians’ acceptance of Medicaid patients in high-fee states was about 18 percentage points higher than the low-fee states (61 percent versus 43 percent) in 1997; while in 2001 the gap is reduced to 11 percentage points (58 percent versus 47 percent). The national average of primary care physicians’ acceptance of most or all new Medicaid patients was 53 percent in 1997 and 54 percent in 2001. Moreover, large fee increases (e.g., low-fee states experienced the largest fee change on average) were associated with primary care physicians’ greater willingness to accept new Medicaid patients: the rate of primary care physicians’ acceptance of new Medicaid patients in these low-fee states went up from 43 percent in 1997 to 47 percent in 2001. Although their study shows some evidence that a Medicaid fee increase is associated with increased Medicaid participation among primary care physicians, it does not provide a direct link between Medicaid reimbursement rates relative to Medicare and physicians’ acceptance of Medicaid patients.

Bindman et al. (2003) examine California in particular and focus on the relationship between Medicaid fee increases and the prevalence of managed care in the Medi-Cal system. The authors note that in August of 2000 a fee increase raised physician Medicaid reimbursement from an average of 57.7 percent to 65.2 percent of the average Medicare payment in California. This amounts to a fee increase for a typical office visit from approximately $18 to $24. The study used cross-sectional surveys in 1996 and 2001 on both primary care physicians and specialists. Controlling for physician demographics and specialties the authors found no increase in Medi-Cal participation. Their study notes that between 1996 and 2001, despite payment increases, the number of Medi-Cal primary care physician equivalents dropped from 57 to 46 per 100,000 patients.31

Mukamel et al. (2012) address the effect of similar financial incentives in California’s Medicaid system but from the standpoint of nurse staffing levels. Using separate models for three staffing types, RNs, LPNs, and CNAs, the authors determined that financial incentives were only a significant factor in increasing hours per resident day (hprd) for RNs. They note that expected nursing home reimbursement rate increases in 2008 were associated with increased RN staffing levels in 2006. They estimate the effect at around a 2-minute increase (0.035 hrpd) for each $10 increase in payment rate. This amounts to a 10 percent increase in staffing over 2005 base levels. The authors explain that this relatively small increase in staffing might be partially explained by the financial incentives original intent that is, to influence labor expenditures and not directly influence staffing levels. The authors note there may have been a change in wages and benefits for all three groups, but that it was not measured in this study.

Finally, Coburn et al. (1999) examined the effect of Medicaid fee changes on physician participation and enrollee access in Maine and Michigan using multiple natural experiments. The authors found that changes in Medicaid fees observed in either state over any observed period had no substantial impact on either physician participation or enrollee access and utilization.32 In one case in Maine, after an increase of 47.5 percent in Medicaid reimbursement rates, primary care physician participation fell by 1 percent (from 477 to 471).33 After a second increase of 24.5 percent, participation increased by only 2 percent.34 This result is mirrored in Michigan where participation increased by only 2 percent after a reimbursement increase of 7.9 percent and decreased by 0.6 percent after a cut of 16.6 percent and fell again by 0.2 percent after a restoration of 19.6 percent. The authors note that these small changes in physician participation hold even when adjusting for lagged responses in both cases. The authors found similar results when examining the utilization of services. Using ambulatory care as a proxy for utilization of services in general, the authors found that changes in the proportion of beneficiaries with at least one visit in a month and in the average number of visits by beneficiaries with at least one visit are not in a direction consistent with the fee changes and are all very small in magnitude. The authors note that these results also do not change when estimated in the long run. However, a major confounding factor in these results, as the authors note, is the relative size of Medicaid payment rate increases compared to those of the private sector fees. The authors state that most gains relative to the private market were quickly eroded.

31 A physician equivalent is defined as one full time physician providing full time working hours per week (40 hrs) in a given specialty. For example, a physician who provides 20 hours of Family Medicine is counted as 0.5 of a physician equivalent in Family Medicine.

32 The study has given due consideration to the changes in Medicaid payment relative to the payments by other payers. The authors use the ratio of Medicaid payments to charges as an index of changes in relative payments. They have also confirmed with Blue Cross Blue Shield (BCBS) of Michigan (which serves 49 percent of the state’s health insurance market) that BCBS’s payments-to-charge ratio for all physician services did not change substantially.

33 The corresponding relative fee change (i.e., Medicare relative to charges) is 40.2 percent.

34 The corresponding relative fee change (i.e., Medicare relative to charges) is 25.8 percent.

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