Medicaid policy and the substitution of hospital outpatient care for physician care

Abstract

This article explores the effects of reimbursement and utilization control policies on utilization patterns and spending for physician and hospital outpatient services under state Medicaid programs. The empirical work shows a negative relationship between the level of Medicaid physician fees relative to Medicare and private fees, and the numbers of outpatient care recipients, suggesting that outpatient care substitutes for physician care in states with low fee levels. In addition, it shows a positive relationship between Medicaid physician fees and outpatient spending per recipient, suggesting that in low-fee states outpatient departments are providing some types of care that could be provided in a physician's office. Finally, the analysis demonstrates that reimbursement and utilization control policies have significant effects in the expected directions on aggregate Medicaid spending for physician and outpatient services.