Money illusion among health care providers: should we adjust for inflation in analyses of provider behavior?

This analysis questions the appropriateness of inflation adjustment in analyses of provider behavior by comparing results from estimations using adjusted financial variables with those from estimations using unadjusted financial variables. Using Medicaid claims from 1984–1991, we explored the effects of Medicaid reimbursement increases on dentists’ participation. Using results from inflation adjusted analyses, we would conclude that a 23% nominal increase in Medicaid reimbursement rates yields no increase in the number of Medicaid children seen by dentists. In contrast, estimations based on unadjusted reimbursement rates suggest that this same 23% nominal increase in reimbursement leads to an expected 16-person (15.4%) increase in the number of Medicaid patients seen per provider per year. These analyses demonstrate that results are sensitive to adjustment for inflation. While adjusting for inflation is a generally accepted practice in health services research, doing so without evidence that providers respond to adjusted reimbursement may be unjustified. More research is needed to determine the appropriateness of inflation adjustment in analyses of provider behavior, and the circumstances under which it should or should not be done.