Physician participation rates in Medicaid vary widely across the country, and, overall, there has been a decline in recent years. We performed an evaluation in California of whether the expansion of Medicaid managed care and a physician payment increase were associated with an increase over time in the percentage of physicians caring for Medicaid patients. Surveys performed before and after these strategies were used did not reveal an increase over time in physicians' participation in California's Medicaid program. Budgetary constraints will force policy makers to confront the priorities of the Medicaid program, to question the policy objectives for physician participation in Medicaid, and to consider more far-reaching reforms in Medicaid and the overall health care system.