Physician participation in Medicaid: evidence from California

The objective of this paper is to investigate physician participation in the Medicaid program. In particular, how sensitive is the physician's involvement with Medicaid to variations in Medicaid reimbursements? How important are fee levels in the private market? What is the impact of inflation on the costs of physicians' inputs, particularly if the Medicaid fee remains relatively constant? These questions are explored through an empirical analysis fo data from the California Medicaid program. Two aspects of physician participation form the focus of the study: 1) the percentage of physicians participating in Medicaid in a given county and 2) the average number of nonaged, Medicaid patients treated by each participating physician. Information on these variables and on Medicaid fees and private charges come from Medicare and Medicaid claims records for more than 3,000 physicians. The most significant result of the study is the reaffirmation of the importance of the amounts of both private charges and Medicaid payments in determining participation rates and average Medicaid case loads per participating physician. Both dependent variables are, as expected, inversely related to physicians' average billed revenue per patient and are positively related to average Medicaid payments per patient. In addition, it appears that the long-run impact of a change in billed revenue is significantly larger in absolute value than a corresponding change in the amount that Medicaid is willing to pay.