Hospital Rate-setting

Hospital rate-setting arose for the same reasons and during the same period as CON; in the context of widespread third-party payment for care and cost-based reimbursement under Medicare, it was assumed that regulation was a needed substitute for weak market forces. As well, rate-setting systems were used to level the playing field across hospitals in terms of uncompensated care loads. As with CON, state hospital rate-setting has been on the decline. There were several different types of hospital rate-setting including “voluntary” and mandatory systems; rate-setting first appeared in New York in 1969 and by 1981, 31 states had some form of prospective hospital rate-setting, with the most stringent approach being that of all-payer mandatory rate-setting, which at one time was in effect in 6 states. Today, Maryland is the sole state left with mandatory hospital rate-setting. The Duke Center for Health Policy has developed a draft working paper assessing the costs and benefits of hospital rate setting (pdf). More information is available at the following sites:

*Price Controls (NCPA), ideas from the National Center for Policy Analysis.

*Maryland Hospitals Strain Under Rate System: Health Insurers Steer Patients to D.C., from the Washington Post, 5/31/98.

*New York State Ends Rate-Setting (Alpha Center)


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