Tracking the Demise of State Hospital Rate Setting

Abstract

From its once preeminent position in state health policy, prospective hospital rate setting has declined in use from more than thirty states in 1980 to two today. This essay tracks the trend toward deregulation in various states -especially Massachusetts, New Jersey, and New York - and examines the continuation of rate setting in Maryland. Principally, the decline reflects the development of managed care and capitation as alternative means to control health spending growth. This trend represents both an evolution in prospective payment methodology and a renewed preference for private over public-sector price controls.