Medicaid Physician Fees Outpace Inflation From 1998 To 2003,
But Still Lag Behind Those Of Medicare

Article Warns That Medicaid Rate Increases Unlikely to Continue As State Finances Deteriorate

BETHESDA, MD — Medicaid physician fees on average grew at nearly twice the rate of inflation between 1998 and 2003, but they still remain well below the rates paid by Medicare in most parts of the country, according to a new article published today on the Health Affairs Web site.

The increases between 1998 and 2003 exceeded the growth rate during the previous five years, in which Medicaid fees fell on an inflation-adjusted basis, according to the new Robert Wood Johnson Foundation–supported paper authored by researchers from the Urban Institute and Center for Studying Health System Change.

On average, Medicaid fees grew 27.4 percent during the 1998–2003 period. That average annual rate of 5 percent easily outpaced the 2.6 percent annual growth in the Consumer Price Index, creating overall real growth of about 14 percent during the study period.
Primary care fees increased most, growing 41.2 percent over that period. Thirty states raised their fees at or above the rate of inflation, including ten that raised physician fees by more than 35 percent.

Many states were able to boost rates during the 1998–2003 period because of healthy revenue growth during an extended period of economic growth in an effort to improve access to basic care for Medicaid beneficiaries. But the article cautions that of the current period slow economic growth has caused states to pull back on Medicaid physician payments.

“States are now dealing with the worst financial crisis since the Great Depression, and will not be in position to raise provider fees greatly, so access for Medicaid recipients may be at increasing risk,” says lead author Stephen Zuckerman, a principal research associate with the Urban Institute.

Other findings:

-- Six states—the District of Columbia, Missouri, New Jersey, New York, Pennsylvania and Rhode Island—had average Medicaid fees that were less than 80 percent of the national average in 2003.

-- Ten states—Alaska, Arizona, Connecticut, Delaware, Iowa, Massachusetts, Nevada, new Mexico, North Carolina, and Wyoming—had average Medicaid fees that were more than 25 percent above the national average in 2003.

-- Medicaid physician fees were about 69 percent of Medicare physician fees in 2003, up from 62 percent in 1998. Medicare fees were about the same in 2003 as they had been in 1998.

-- The seven states with the lowest fees increased them by 39 percent between 1998 and 2003, compared with the 18 percent that all other states increased their fees.

Higher Medicaid fees are related to patient access, according to the article. In states with a higher Medicaid-to-Medicare payment ratio, 68 percent of physicians were accepting new Medicaid patients in 2001, while only 52 percent were doing so in states with a lower Medicaid-to-Medicare payment ratio.

Zuckerman says that recent Medicaid payment increases probably haven’t changed overall access, however, because the percentage of all physicians accepting new Medicaid recipients did not change significantly between 1997 and 2001.

Zuckerman’s coauthors are Joshua McFeeters, a research associate at Urban; Peter Cunningham, a senior health researcher at the Center for Studying Health System Change; and Len Nichols, the center’s vice president.

The article can be read at content.healthaffairs.org/cgi/content/abstract/hlthaff.w4.374.

The research was supported by the Robert Wood Johnson Foundation through its support of Urban’s Assessing the New Federalism Project and its overall support for the Center for Studying Health System Change.

Health Affairs, published by Project HOPE, is a bimonthly multidisciplinary journal devoted to publishing the leading edge in health policy thought and research. Additional peer-reviewed papers are published weekly online as Health Affairs Web Exclusives at www.healthaffairs.org. Health Affairs Web Exclusives are supported in part by a grant from the Commonwealth Fund.

©2004 Project HOPE–The People-to-People Health Foundation, Inc.