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Is Primary Care A Substitute or Complement for Other Medical Care? Evidence from Medicaid

Abstract It is widely believed that Medicaid reimbursement for primary care is too low and that these low fees adversely affect access to healthcare for Medicaid recipients. In this article, we exploit changes in Medicaid physician fees for primary care to study the response of primary care visits and services that are complements/substitutes with primary care, including emergency department, hospitalization, prescription drugs, and imaging. Results from our study indicate that higher Medicaid fees for primary care have modest effects. Among non-blind and non-disabled adults, we find that a 25% (or $10) increase in Medicaid fees for primary care is associated with approximately a 5% of a standard deviation increase in the number of primary care visits. For the same group, we also find that the fee increase is associated with an increase in the probability of having any primary care visits of approximately 3 percentage points. For children, changes in Medicaid fees are not significantly related to the number of primary care visits. In terms of other types of care, we find some evidence that Medicaid fees for primary care are associated with prescription drug use, and no evidence that primary care fees are associated with the use of emergency department, inpatient services, or imaging. Overall, our evidence provides, at best, limited support for the large effects of Medicaid fees on service provision sometimes asserted in policy discussions.