In January 1985, New York State implemented legislation that allowed for a 30 percent increase in Medicaid fees for physicians providing primary care services. This was intended to increase their levels of participation. Yet the outcome was not as expected. In upstate New York, the number of physicians participating in Medicaid each month actually declined; in New York City, the monthly rate of increase in participating physicians, which was part of the overall sharp rise in all licensed physicians, underwent a decline. Furthermore, utilization measures suggest that “procedural upgrading” might have become a problem in New York City. These results suggest that a marginal increase in New York State's low Medicaid fees will not have a positive effect on physician participation levels.