Provider payment rates. As mentioned above, most state Medicaid programs pay hospitals and physicians significantly less than do private insurers and, in the case of physicians, less than does Medicare. In 1993, for example, Medicaid paid 93 percent of hospital costs incurred by its patients. Many Medicaid patients, for instance, rely on public or teaching hospitals located in low-income urban areas. At a time when Medicare and the private sector are cutting payments to them, the care that these hospitals with high ratios of Medicaid patients provide could be seriously compromised under the proposed Medicaid cuts.
States face a similar problem with payment rates to physicians.
Overall, their Medicaid fees are approximately 73 percent of Medicare's and much lower than those offered by private payers. Assuming that states cut provider payments for the blind and disabled by 10 percent, this approach would save 1.8 percent of total Medicaid expenditures. Assuming states cut expenditures by two-thirds, savings would range from 2.6 to 5.1 percent of program expenditures. The risk here is that beneficiaries might simply use higher-cost substitute services. Disproportionate share payments.