Containing Medicaid costs in an era of growing physician supply

In this analysis, Medicaid cost containment is viewed within the theoretical framework of a price discrimination model. The value of viewing supply decisions made by physicians in terms of the conventional economic laws of supply and demand is demonstrated. Physicians are seen to respond to prices in a predictable way. As private prices increase, physicians are less willing to participate in Medicaid. As Medicaid prices increase, physicians are more willing to participate. Effects of changes in the number of persons eligible for Medicaid and in the physician supply are also analyzed.