An economic model of large Medicaid practices

Public attention given to Medicaid "mills" prompted this more general investigation of the origins of large Medicaid practices. A dual market demand model is proposed showing how Medicaid competes with private insurers for scarce physician time. Various program parameters--fee schedules, coverage, collection costs--are analyzed along with physician preferences, specialties, and other supply-side characteristics. Maximum likelihood techniques are used to test the model. The principal finding is that in raising Medicaid fees, as many physicians opt into the program as expand their Medicaid caseloads to exceptional levels, leaving the maldistribution of patients unaffected while notably improving access. Still, the fact that Medicaid fees are lower than those of private insurers does lead to reduced access to more qualified practitioners. Where anti-Medicaid sentiment is stronger, access is also reduced and large Medicaid practices more likely to flourish.