Publication

Rate Regulatory Handbook: A Guide for State Implementation of Cost Constraint Models
November, 2024
INTRODUCTION
In the absence of an effective non-governmental cost-containment program, health-care cost inflation will continue and rising costs will place ever-increasing burdens on federal and state budgets. These trends and the looming federal deficit problems may make hospital-cost containment a political imperative not only as a means of making health care more affordable for individuals and private organizations, but also as a means of reducing federal and state budgetary deficits. State governments may also feel increasing pressure from middle-class Americans as disproportionate health-care cost inflation results in higher insurance premiums, larger deductibles, and higher taxes.
State-based and regional hospital rate setting models were widely used in the 1970s and 1980s when hospital rate setting was at the center of the policy paradigm for controlling hospital cost growth. Since that time, the popularity of hospital rate setting has waned considerably, and only the state of Maryland continues to operate its system of all-payer hospital rate regulation. Nonetheless, the option of creating a professional, politically neutral, expert, and effective cost-containment agency may become increasingly attractive from both a political and a fiscal perspective.
This handbook is intended to guide state regulators in efforts to initiate and operate a state or regional hospital rate setting system with participation and compliance enforced by law and regulation. Our focus for the implementation of rate regulation is on the hospital industry because it accounts for the largest proportion of health care expenditures and hospital prices have been growing more rapidly than any other sector.,
This Handbook contains the following sections: 1) a discussion of three low-intensity rate setting models; 2) an articulation of the key characteristics of successful past rate setting systems, including a discussion of how future rate setting systems should be structured; 3) an analysis of how rate setting can promote competition on non-price domains, and 4) a discussion of the weaknesses of past hospital rate setting approaches and how to address them. This handbook concludes with tenets of successful rate setting systems. The appendices to this report include a step-by-step operational description of a model of “Flexible” Hospital Global Budgets (HGBs),, and other detailed information that policymakers can use when in establishing their own rate-setting systems.
Source Sightings
Rate Regulatory Handbook: A Guide for State Implementation of Cost Constraint Models
U.S. State-Based Hospital Rate Setting: What Worked, What Didn’t, and What We Need to Do Now
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