Medicaid Payment Increases and Physician Labor Supply

The Affordable Care Act (ACA) greatly increased access to insurance, partially through state Medicaid expansions. In conjunction with this insurance expansion, the ACA increased Medicaid reimbursement for primary care services to national Medicare levels for two years (2013-2014), with the goal of incentivizing physicians to treat more Medicaid patients. The policy change affected physicians differently, based on their state’s generosity of Medicaid reimbursement, relative to Medicare rates, prior to the policy change. I use this natural experiment to test whether primary care physicians respond to Medicaid payment increases by changing their Medicaid participation decision and labor supply, as predicted by a mixed-economy model. To do so, I rely on a new database of claims and electronic health record data compiled by athenahealth, Inc., a national provider of electronic health records, medical billing, and practice management services. Overall, I find no change in physicians’ Medicaid participation or labor supply decisions in response to the payment increase. However, within the subset of states that made this policy change permanent, I find an increase in acceptance of new Medicaid patients, with some evidence of shorter appointment durations across payer types. These findings suggest that temporary financial incentives did not have the intended effect on physician behavior, but a permanent payment bump may increase physician participation in Medicaid.