Competition, regulation, and hospital costs, 1982 to 1986

Abstract

We used data on 5490 nonfederal, short-term general hospitals to evaluate the relative effectiveness of regulatory and market-oriented cost-control policies on hospital cost inflation between 1982 and 1986. All-payer rate-regulation programs reduced inflation rates by 16.3% in Massachusetts, 15.4% in Maryland, and 6.3% in New York, compared with the control hospitals in 43 states with neither all-payer rate regulation nor an aggressive market-oriented strategy. New Jersey hospitals experienced a rate of cost inflation similar to the control hospitals. Given the effectiveness of its regulatory program in the 1970s, however, New Jersey began and ended the period from 1982 to 1986 with the lowest costs, controlling for wages and patient mix. California's market-oriented cost-control policy reduced inflation rates by 10.1%. Hospitals with large percentages of patients insured by Medicare's prospective payment system experienced cost inflation rates 16.1% lower than hospitals with small percentages of Medicare patients. Investor-owned hospitals experienced rates of cost increase 11.6% higher than private nonprofit hospitals and 15.0% higher than public hospitals.