IDEAS home Printed from
MyIDEAS: Log in (now much improved!) to save this book chapter

Regulation of prices and investment in hospitals in the United States

In: Handbook of Health Economics

Listed author(s):
  • Salkever, David S.

With the spread of cost-based hospital payment systems in the United States in the 1960s, and the implementation of the Medicare and Medicaid programs in 1966, rapidly rising hospital costs imposed unexpected pressures on Federal and state budgets and generated a demand for regulatory interventions. Large numbers of states responded with regulatory controls on hospital investment and a significant minority of states enacted hospital price regulation (rate-setting) laws. As strong hospital sector inflation continued into the 1970s, Federal efforts to regulate prices (through the Economic Stabilization Program) and to encourage additional state regulation were also enacted. This chapter reviews the economic research on the impact of these regulatory interventions, focusing on econometric studies in particular. Several conclusions emerge from this review. First, studies of adoption of regulation show that pressure on state budgets and pro-regulation political views were more influential than "provider capture" or "rent-seeking" factors. Second, cost-containment impacts of state rate-setting programs varied over time, with changes in the national health care economy and major Federal policy thrusts. Third, there is little evidence that investment controls reduced the rate of cost growth though inconsistent reports of constraining effects on numbers of beds and diffusion of some specialized services did appear. Fourth, econometric studies of the Medicare Prospective Payment System (PPS) supported the presumption that PPS would constrain the growth in cost per case, but concomitant increases in case-mix intensity and declines in admissions raised questions about (1) the extent to which PPS truly induced efficiency gains and (2) the adequacy of our analytic models of hospital behavior. Fifth, as cost-based payment was replaced by prospective payment in Medicare, Medicaid and the private sector, and as managed care encouraged price competition, the evidence of regulatory cost savings dwindled and rate regulation virtually disappeared. While investment regulation is still widespread, its role and effect in the new hospital marketplace is still unclear.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL:
Download Restriction: Full text for ScienceDirect subscribers only

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

in new window

This chapter was published in:
  • A. J. Culyer & J. P. Newhouse (ed.), 2000. "Handbook of Health Economics," Handbook of Health Economics, Elsevier, edition 1, volume 1, number 1, 00.
  • This item is provided by Elsevier in its series Handbook of Health Economics with number 1-28.
    Handle: RePEc:eee:heachp:1-28
    Contact details of provider: Web page:

    No references listed on IDEAS
    You can help add them by filling out this form.

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    When requesting a correction, please mention this item's handle: RePEc:eee:heachp:1-28. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dana Niculescu)

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.