Endogenous hospital regulation and its effects on hospital and non-hospital expenditures

Past studies of hospital rate setting regulation conclude that mature programs have been effective in constraining hospital expenditures. However, if rate regulation is influenced by higher hospital expenditures the relationship between expenditures and rate setting is confounded. This study assesses the impact of rate setting on hospital and non-hospital expenditures using a simultaneous-equation model which separates the effects of hospital expenditures on the decision to regulate from the effects of regulation on expenditures. The simultaneous-equation results indicate that mature rate setting is associated with lower per capita health care expenditures, including hospital and non-hospital expenditures.