The import of hospital rate setting programs on hospital and health care expenditures, 1975–85

To reduce hospital expenditures, many jurisdictions now regulate hospital rates. Prior theoretical work has demonstrated, however, that the effect of rate regulation on total expenditures is a priori unclear. Empirical research has found that hospital rate setting programs have reduced expenditures per diem and per admission, but not necessarily hospital expenditures or total health care expenditure per capita. This study extends this empirical research. It employs pooled cross section-time series data on state level expenditure, regulatory, and demographic variables obrserved annually for 1975–85. The analysis provides little evidence that hospital rate setting programs have reduced hospital expenditures. Some rate setting programs actually are positively and significantly related to hospital expenditures. Overall, this study does not suggest that regulatory programs will reduce hospital expenditures.