Evaluation of the impact of formal peer review of the New Mexico Medicaid program during its first two years of operation demonstrated that peer review can affect the level of quality of care provided. Use of injections dropped by over 60 percent. Major decreases occurred in the use of antibiotics (e.g., lincomycin, tetracycline, and short-acting penicillin), certain steroids, and antispasmodics. Analysis of the relationship between physician characteristics and the proper use of injections demonstrated the following: (1) being a member of a group practice that billed under its own name was the variable most significantly associated with the proper use of injections; (2) for physicians billing under their own names, being board-certified was the principal predictor of higher quality care; (3) provider type (being an M.D. rather than a D.O.) and specialty were also significant predictors of quality; (4) foreign medical graduates did not give substantially worse care than did U.S. graduates; and (5) the 6 percent of physicians who gave 40 percent of the medically unnecessary injections changed their behavior dramatically for the better. 28 pp. Ref.