Does the quality of care in Medicaid MCOs vary with the form of physician compensation?

A growing fraction of Medicaid participants are enrolled in managed care organizations (MCOs). MCOs contract with primary care physicians (PCPs) to provide health‐care services to Medicaid enrollees. The PCPs are generally compensated either via fee‐for‐service (FFS) or via capitated arrangements. This paper investigates whether the quality of care that Medicaid enrollees receive varies with the means by which PCPs are compensated. Using data for all Medicaid MCO enrollees in a large state, we find that enrollees in MCOs that pay their PCPs exclusively via FFS arrangements are more likely to receive services for which the PCPs receive additional compensation. These enrollees also are less likely to receive services for which the PCPs do not receive additional compensation. These findings suggest that financial incentives may influence the behavior of PCPs in Medicaid MCOs, and thus the quality of the health care received by Medicaid participants enrolled in MCOs. Copyright © 2007 John Wiley & Sons, Ltd.