Characteristics of the usual source of care (e.g. specialty, organizational type) are known to be related to utilization and cost levels. This study assesses the degree to which variations in utilization and cost are attributable to differences in patient mix (i.e. demographic and diagnostic characteristics). Comparisons are made with Medicaid payments with and without patient-mix adjustment among users of hospital outpatient departments, emergency rooms, Federally Qualified Health Centers and office-based physicians. The study builds upon previous work by including a well-developed set of ambulatory case-mix controls, a variety of provider types, a large number of providers, and a relatively comprehensive resource utilization component. Findings confirm significant differences in patient demographic and diagnostic characteristics among users of different types of providers. Controlling for these patient-mix characteristics explains 44% of the variation in ambulatory use, 21% in hospital admissions, and 13% in total Medicaid payments. The considerable remaining variation suggests differences in provider efficiency. For example, even after patient mix adjustment, 18% of those who rely on outpatient departments are hospitalized annually compared to 10% for users of office-based physicians. Overall findings indicate that patient-mix characteristics, as well as differences in provider efficiency, should be considered when developing and evaluating managed care and preferred provider initiatives for ambulatory care.