Controlling hospital cost inflation: new perspectives on state rate setting.

Abstract

Prologue: In the seventeen years since New York created a state hospital rate control agency, more than a dozen states have developed regulatory variations on this theme as their favored policy approach to moderating health costs. The antiregulatory mood that currently pervades many state capitols and which remains a central theme of the Reagan administration has slowed hut not stopped the proliferation of state rate-setting agencies. In this essay, the three authors, all of whom advocate state rate setting as a workable approach to cost containment, take a new look at state-level hospital rate regulation and examine three questions concerning its effect: (1) Does regulation have a significant long-term impact on the rate of cost inflation? (2) Does utilization of the hospital change significantly in regulated states? (3) Does rate setting adversely affect the financial strength of institutions in regulated jurisdictions? Carl Schramm, who holds a law degree and a doctorate in economics, is director of th...