Physician Payments and Infant Mortality: Evidence from Medicaid Fee Policy

While efforts to improve the health of the uninsured have focused on demand side policies such as increasing insurance coverage, supply side changes may be equally important. Yet there is little direct evidence on the effect of policies designed to increase the supply of Medicaid services to the poor. We provide such evidence by examining the relationship between infant mortality and the ratio of Medicaid fees to private fees for obstetrician/gynecologists. We build a state and year specific index of the fee ratio for 1979-1992, a period of substantial variation in relative Medicaid fees. We find that increases in fee ratios are associated with significant declines in the infant mortality rate. We also find that higher fees raise payments made to physicians and clinics under the Medicaid program, but reduce payments to hospitals. Finally, we compare the cost effectiveness of reducing infant mortality by increasing fee ratios to the efficacy of reducing mortality by expanding the Medicaid eligibility of pregnant women. Although our results are sensitive to the time period used, we conclude that raising fee ratios is at least as cost effective as increasing eligibility.