BETHESDA, MD – Between 2003 and 2008, Medicaid physician fees rose 15.1 percent, closing a portion of the gap with Medicare physician payment rates, according to a study by researchers from the Urban Institute.

"Medicaid has historically paid physicians less than both private insurers and Medicare for the same services, contributing to reduced physician participation in Medicaid in some areas and raising concerns over access to care for enrollees" said lead author Stephen Zuckerman, a senior fellow at the Urban Institute's Health Policy Center. "These concerns were a primary reason that state Medicaid programs increased physician fees during the late 1990s and early 2000s."

This study, conducted by Zuckerman and Urban Institute coauthors Aimee Williams and Karen Stockley, provides the first national and state-by-state update of Medicaid physician fees since 2003. Their research was conducted in partnership with the Kaiser Family Foundation's Commission on Medicaid and the Uninsured and the California HealthCare Foundation.

Although findings are based only on Medicaid fee-for-service physician reimbursement, nearly two-thirds of program spending still occurs in the fee-for-service setting, where elderly and disabled enrollees with the greatest health needs primarily receive their care.

"State revenue declines during the current economic crisis heighten the need to monitor this issue since many states sought to reduce Medicaid spending growth during past recessions through provider payment cuts," said Zuckerman.

Across all states and categories of physician services, Medicaid physician fees increased 15.1 percent between 2003 and 2008, representing an average annual growth rate of 2.6 percent. Over the same period, the Consumer Price Index (CPI) increased 20.3 percent (3.4 percent annually) and the medical care services component of the CPI - which includes physician services - increased 28.1 percent (4.6 percent annually). Among all categories of Medicaid physician fees, only fees for primary care services kept pace with inflation.

All but two states - Minnesota and New York - increased their Medicaid physician fees during the 2003-08 study period. However, fees increased by less than the rate of general inflation in 25 states, and fees increased by less than 5 percent over these five years in 8 states: Alabama, Alaska, Arkansas, California, Florida, Hawaii, West Virginia, and Wisconsin.

Levels of Medicaid physician fees varied widely in 2003, and that variation remained fairly constant over the following five years. In 2008, Medicaid physician fees in six states and the District of Columbia were more than 10 percent below the average across all states. These states included those with the two largest Medicaid programs - California and New York - as well as Florida, Maine, New Jersey, and Rhode Island. New Jersey's Medicaid program paid the lowest physician fees, at 58 percent of the national average.

Medicaid physician fees still lag behind the fees paid to doctors by the Medicare program. However, this gap closed slightly between 2003 and 2008, as Medicare physician fees fell even more in real-dollar terms than did Medicaid fees. In 2008, Medicaid physician fees were 72 percent of Medicare fees, up from 69 percent in 2003.

The ratio of Medicare physician payments to payments from private health plans has remained fairly stable since 2003, which suggests that Medicaid physician fees may have also increased relative to physician fees from private payers.

The increase in Medicaid fees relative to Medicare fees resulted from changes in reimbursement for two types of services: primary care and obstetrics. Medicaid payments to physicians for primary care services increased from 62 percent of Medicare fees in 2003 to 66 percent of Medicare fees in 2008.

Medicaid fees for obstetrical services increased from 84 percent of Medicare fees in 2003 to 93 percent of Medicare fees in 2008. Medicaid physician fees for all other types of physician services remained at about 73 percent of Medicare levels over the 2003-2008 period.