Physician Expectations and Primary Care Shortages: Evidence from the Affordable Care

Act Medicaid Expansion

Gerrit R. Lensink Montana State University

December 2015

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PhysicianExpectationsandPrimaryCareShortages:EvidencefromtheAffordableCareActMedicaidExpansion Gerrit R. Lensink Montana State University I. Introduction

Since the 2008 Presidential election, expanding health care coverage has been a top priority of

American legislators. Between 2008 and 2013, the number of uninsured Americans grew steadily

from roughly 14 percent to 18 percent before falling to a record low of 11.9 percent in 2015

(Levy, 2015). This increase in coverage is allegedly an effect of the Affordable Care Act (2010),

a healthcare reform policy implemented to expand coverage to a proposed 34 million Americans

(Manchikanti et al., n.d.). While the overall expansion of health insurance coverage proves to be

successful, the effects on the healthcare industry itself may not follow as expected.

Despite a temporary increase in compensation following the implementation of the

affordable care acti (Millman, 2014), as health care spending increases by third party payers, real

reimbursement to physicians continually declineii. This diverging trend between spending and

compensation, coupled with the ever-increasing cost to provide health care, has eroded private

practice medicine and stimulated independent physicians to migrate to hospitals, health

maintenance organizations, and other more profitable ventures.

i The Legislation of the Affordable Care Act “provides primary care physicians with a 10% increase in payment for 5 years (2011 to 2015)” as well as a rise in Medicaid payments equivalent to Medicare reimbursement levels. The intent of this legislation is to “temporarily [end] the penalties some physicians face when they care for patients covered by Medicaid”. ii Some sources attribute 56 percent of all health care costs to physician salaries. This metric includes all health industry salaries, whereas physician salaries are only responsible for 10 percent of total costs. (Drake, 2014)

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Although primary care physicians are not expected to discontinue care on existing

Medicaid patients, Robert Wergin, President of the American Academy of Family Physicians,

anticipates a sharp decline in acceptance of these new patients as an effect of Medicaid

expansion (Millman, 2014). Following the 2015 expiration of reimbursement increases, a 2014

study projected a decrease in Medicaid compensation upwards of 45 percent in states that had

made the decision to expand Medicaid coverage, roughly 10 percent more than states that had

not (Zuckerman et al., 2014). While primary care physicians may not have had access to

information this perfect during Medicaid expansion declarations, many still believed expansion

would yield a long run decrease in effective income. Rising overhead paired with expectations of

long-term declining reimbursement should (will?) theoretically decrease the total supply of

physicians.

The issue in question, however, is not the projected overall shortage of physicians, but

rather the emigration of physicians from nonmetropolitan areas and the effect it may have on

these less populated regions. The foundation of the Affordable Care Act (ACA) is the sharing of

risk across large networks of doctors, hospitals, and government organizations. Remote and less

populated regions, however, will be excluded from this assembly. Consequently, health care

organizations in these nonmetropolitan regions that are unable to create effective risk pools will

not only face the increased costs and lower reimbursement of the new plan, but will also lack the

network necessary to support the requirements governed by the ACA. This will incentivize

physicians to leave town for a greater profit or standard of living (Figure 1.1).

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Figure 1.1: Theoretical basis for prediction. The effects of increasing fixed and variable cost as operating costs rise and reimbursements fall. Decline in physician reimbursements is represented as an increase in variable costs, whereas increase in operating costs is represented as an increase in fixed costs. The long run effect is a decrease in primary care physicians as well as an increased market price for healthcare.

Rural residents constitute 20 percent of America’s population, yet only 11.4 percent of all

practicing physicians service rural areas (Burrows et al., 2012). Additionally, average income of

individuals in nonmetropolitan areas is less than 75 percent of those in metropolitan areas

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(Miller, 2009). Unintentionally furthering the decrease of this provider supply will increase the

effective cost for more than 20 percent of America’s lowest income individuals living outside of

large metropolitan areas. This decrease in primary care availability is an important cost that must

be accounted for with the implementation of the Affordable Care Act.

The purpose of this paper is to examine the expected effect of Medicaid expansion on

primary care physician availability in nonmetropolitan areas and to study the causal relationship

between the declaration of Medicaid expansion and the shortage and migration of physicians in

these areas. This study exploits the fact that some states have chosen to publicly announce their

intent to participate in or opt-out of the Medicaid expansion, a principal component of the

Affordable Care Act. This research utilizes two data sets: first, the number of primary care

physicians by year located in nonmetropolitan areas within states that have opted out of

Medicaid expansion, the second set encompasses the same metrics but in states that have chosen

to expand Medicaid. Using the “Opt-out” states as a control group serves as a mechanism to

reveal the sole consequence of Medicaid expansion expectations on the prevalence of primary

care physicians in nonmetropolitan areas in the “expansion” states. The results of this paper

suggest the announcement of Medicaid expansion is responsible for a 13 percent decrease in

primary care physician availability in nonmetropolitan areas.

The remainder of this paper is structured as follows: Section II provides a background for

the Affordable Care Act, Medicaid Expansion, and physician expectations; Section III describes

the data collection and empirical model; Section IV examines and discusses the results; Section

V serves as the conclusion.

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II. Background and Literature Review

The Affordable Care Act (2010) is a healthcare reform policy implementing a number of

insurance modifications meant to expand coverage, hold insurance companies accountable, lower

healthcare costs, guarantee more choice, and enhance the quality of care for all Americans

(Affordable Care Act, n.d.). Medicaid expansion is the primary channel for extension of health

insurance coverage and is projected to insure 21.3 million Americans over the next decade

(ObamaCare Medicaid Expansion, 2015) by increasing eligibility to individuals with income less

than 138 percent of the Federal Poverty Level (Dickman et al., 2014).

A 2012 Supreme Court ruling allowed states to opt-out of expanding Medicaid coverage

(Supreme Court, n.d.). To date, 20 states have made definitive public announcements to expand

Medicaid, and 12 states have made public statements to opt-out (Where the states stand, 2015).

Nonmetropolitan areas consist of micropolitan and noncore areas populated by less than

50,000 residents. In 2007, of 3,141 U.S. counties, 2,049 were classified as nonmetropolitan.

The Affordable Care Act has raised a number of concerns, including the outreach,

education, and enrollment of the plan in rural areas along with access to care providers. In

September of 2013, the National Advisory Committee on Rural Health and Human Services

(NACRHHS) met in Bozeman, MT to discuss the challenges and implications that the

Affordable Care Act may have on rural communities (Rural Implications, 2014). The

NACRHHS shaped a number of recommendations in order to make the transition to the ACA as

smooth and as effective as possible for rural communities. Such suggestions include that “the

Secretary direct the Centers for Medicare and Medicaid Services Advisory Panel on Outreach

and Education to consider the unique needs of rural communities”.

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Literature presented by the Kaiser Family Foundation addresses the challenges of

extending health coverage to rural areas in addition to the proposed gains of the ACA (Newkirk

& Damico, 2014). Although limited provider availability is briefly addressed, the suspected

decline in physicians as an effect of the ACA is neglected. The National Rural Health

Association values the lack of primary care providers as well (Burrows et al.), but again does not

address the supposed falling number of providers in these areas.

Michigan, one of several states to embrace the Medicaid expansion, has reportedly been

successful in matching patients with providers since their adoption of the plan in early 2014

(Udow-Phillips et al., 2015; Larner, 2015). Appointment availability for new enrollees in

Medicaid rose 6 percent, while patients holding private insurance saw availability decrease by 2

percent (Tipirneni et al., 2015). This success, however, is muted by data that expose a number of

flaws- three out of four counties have a shortage of physicians in at least one primary care field,

distribution of primary care physicians is uneven across the state, and medical school graduates

are choosing to practice outside the state of Michigan (Lawler, 2015).

The implementation of the affordable care act is not properly designed to expand primary

care medicine. The current fee-for-service program has caused primary care compensationiii to

“declin[e] to levels that are 30 percent to 60 percent lower than those of specialists” (Goodson,

2010).

If new reimbursement models continue on this same trajectory in conjunction with “the

heavy workload of primary care practice and an increasing expectation that primary care

physicians will manage most aspects of an individual’s health care without [proper] support”, a

continuation of the primary care physician shortage should be expected (Goodson).

iiiPrimary care physicians receive, on average, 1 percent of the total insurance premium of a 62-year-old. This is $6 a month, or 19.7 cents a day. (Drake, 2014)

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III. Data and Empirical Model

The data set used in this research summarizes the number of primary care physicians in

nonmetropolitan areas per 10,000 residents over the period of 2008 to 2014. County level data

was collected form the US Census Bureau (Population Estimates 1, n.d.; Population estimates 2,

n.d.), and data regarding number of primary care physicians in each nonmetropolitan area was

gathered from the Bureau of Labor Statistics Occupational Employment Statistics database

(Occupational Employment Statistics, 2015). The raw number of primary care physicians per

nonmetropolitan area was divided by the total population constituting each respective

nonmetropolitan area by year. The physicians per capita were aggregated and averaged by year

for each state, then multiplied by 10,000 to obtain the quantity of primary care physicians per

10,000 residents of each year by test and control group (Table 3.1; Table 3.2).

These data were analyzed with respect to their date of treatment: announcing the decision

to embrace or opt-out of the Medicaid expansion. The Bureau of Labor Statistics Occupational

Employment Statistics database collects data may of each year. To best examine the full effects

of the change, treatment group data were only included for states that had announced Medicaid

expansion one month prior or following occupational data collection in May. These data were

then organized from minus five years to plus two years surrounding treatment. Negative periods

are denoted as “Before” and all periods following are classified as “After”.

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Table 3.1: Primary Care Physician Averages Before and After Expansion Announcement

Table 3.2: Primary Care Physician Averages Before and After Opt-out Announcement

Notes: Parentheticals denote date of announcement. Quantities presented in Primary Care Physicians per 10,000 nonmetropolitan residents

The difference-in-difference empirical model was used to quantify the impact Medicaid

expansion had on physician expectations and primary care provider availability in

nonmetropolitan areas. This method compares the non-expansion state data to expansion state

data. Subtracting the difference in the opt-out states data from the expansionary states data will

eliminate the effect of pre-existing national trends on primary care physicians. This exposes

unique trends in expansion states due to the announcement of decision on Medicaid expansion.

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Table 4.1: Difference in Difference model

IV. Results and Discussion

Difference-in-difference estimates reveal an average decrease of roughly .5 primary care

physicians per 10,000 residents in nonmetropolitan areas, 13 percent less than 4 primary care

physicians per 10,000 before announcement of Medicaid expansion (Table 4.1). Figure 4.1

features trends in primary care physicians per 10,000 residents in nonmetropolitan areas from

2008 to 2014. While both expansionary and non-expansionary states have faced a decline in

Figure 4.1: Difference between nonmetropolitan primary care providers per 10,000 residents states that have chosen to expand Medicaid and the average of primary care providers per 10,000 in states that have opted-out of Medicaid expansion

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Table 4.2: Primary Care Physician Averages by period, Expansion States

Table 4.3: Primary Care Physician Averages by period, Non-Expansion States

Notes: quantities presented in Primary Care Physicians per 10,000

Notes: quantities presented in Primary Care Physicians per 10,000

primary care physicians per capita before the treatment, primary care physician availability

sustained a much more precipitous decline compared to those states that chose to opt-out of the

Medicaid expansion.

Growth between periods negative 5 and negative 2 is likely due to the recovering

American economy following the recession of 2008. Slowing growth transitioning to decline

during periods negative two and negative one is attributed to natural economic contraction

following an expansionary period. These fluctuations stabilize in the non-expansionary states.

Immediately prior to treatment, states that chose to expand Medicaid sustained a sharp decline in

primary care availability, however following treatment, the decline was 59 percent steeper than

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the decrease in the previous period.iv Period two contains incomplete data due to the nature of

announcements being made at differing times. The fall in primary care availability between

periods one and two can be attributed to data omission bias, as data was only observable for four

of 17 states during this period. This omission is attributed to differing announcement times.

Finally, persistence of the effects was unobservable at the time of study as these data were only

available up to 2014.

V. Conclusion

The Affordable Care Act is a healthcare reform policy implementing a number of insurance

modifications meant to expand coverage, hold insurance companies accountable, lower

healthcare costs, guarantee more choice, and enhance the quality of care for all Americans. The

plan will grant 34 million more Americans access to healthcare, although effects on the

healthcare industry itself may not follow as expected. As healthcare spending increases by third

party payers, reimbursement to physicians continues to decline. This diverging trend between

spending and reimbursement, coupled with the ever-increasing cost to provide healthcare, has

eroded primary care practice in nonmetropolitan areas and stimulated migration of primary care

providers to other more profitable ventures.

This paper utilized data collected from the Bureau of Labor Statistics along with the

United States National Census to explore the causal relationship between announcement of

Medicaid expansion and the decrease in primary care physician practicing in nonmetropolitan

locations. Evidence suggests that states that have made public declaration of intent to expand

Medicaid have experienced a 13 percent decrease in primary care physicians practicing in

nonmetropolitan areas.

iv Growth from period -1 to treatment: (!.!"#!!.!"#)

!.!"# = -10.76%; Growth from treatment to period 1: (!.!""!!.!"#)

!.!"" =-17.10%;

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Recent research suggests Medicaid expansion should not have a negative effect on primary care

physician availability, but this fails to control for preexisting trends in the national averages of

physicians per 10,000 residents in nonmetropolitan areas. These raw data are not representative

of the actual effects of Medicaid expansion announcements.

As markets continue to adjust, policymakers should monitor the continuing effects that

the announcement of intent to expand Medicaid has on primary care physician availability in

nonmetropolitan areas. In addition to this, as more data become available, the actual effect

Medicaid expansion has on physician availability should be studied. These effects should be

accounted for in future decision making as it is evident such intent does have an effect on

physician availability. Behavioral changes and physician availability are necessary costs to

consider when evaluating Medicaid expansion and the Affordable Care Act.

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