Do Provider Networks Impact Health Care Use and Spending? Evidence from Random Assignment in Medicaid Managed Care

Do provider networks impact health care use and spending? Previous attempts to answer this important policy question have been hindered by limitations in data and study design. Using a randomized controlled design set in New York Medicaid, I present evidence that broader networks increase both access and spending.

Access to health care providers is a perennial concern in Medicaid. With over two-thirds of Medicaid recipients enrolled in managed care organizations (MCOs), access for the Medicaid population now depends largely on the provider networks employed by these plans. Despite this, little is known about how these networks are formed or how they affect recipients. To study this, I use data from New York Medicaid where managed care recipients are randomly assigned to plans. Each plan contracts with a different set of physicians and hospitals, providing an ideal setting to study the impact of network breadth.

To estimate the relationship between health outcomes and network breadth, I construct a measure of network breadth that uses estimates from a structural model of demand for physicians and hospitals. Combining these measures with administrative health records and plan choice data for over 75,000 randomly assigned Medicaid recipients, I find large and persistent effects of physician and hospital networks on Medicaid recipients. Using variation in networks within plans (to avoid confounding network with other plan-level characteristics), I find that broader physician networks are associated with increases in utilization and spending, reductions in avoidable hospitalizations, and greater plan loyalty, a measure of recipient satisfaction with their plan. Although broader hospital networks also increased plan loyalty, I found no effects on utilization or spending. Regulations that encourage broad networks should account for the tradeoff between improved access and higher spending.