Do the Medicaid and Medicare programs compete for access to health care services? A longitudinal analysis of physician fees, 1998–2004

Larry L. Howard

As the demand for publicly funded health care continues to rise in the U.S., there is increasing pressure on state governments to ensure patient access through adjustments in provider compensation policies. This paper longitudinally examines the fees that states paid physicians for services covered by the Medicaid program over the period 1998-2004. Controlling for an extensive set of economic and health care industry characteristics, the elasticity of states' Medicaid fees, with respect to Medicare fees, is estimated to be in the range of 0.2-0.7 depending on the type of physician service examined. The findings indicate a significant degree of price competition between the Medicaid and Medicare programs for physician services that is more pronounced for cardiology and critical care, but not hospital care. The results also suggest several policy levers that work to either increase patient access or reduce total program costs through changes in fees.