This report chronicles past experience with state-based, mandatory government regulated hospital pricing systems in the U.S. It details how they were designed, what approaches were most successful, what policy goals were achieved, and what key weaknesses led to the demise of most of the systems. The report compares the experiences of six state and regional rate setting models, including a comparison of the relative success of the Maryland and Rochester, New York all-payer demonstrations to the failed Washington state all-payer hospital rate setting model. Using experience from previous rate-setting models, the authors describe best practices for states considering rate-setting models. The report concludes by arguing that hospital rate setting has worked well in the past in the U.S. and has worked effectively in other OECD countries for decades.

The report is part of a series of materials regarding state-based hospital rate setting models prepared through a research grant by Arnold Ventures to help states develop regulatory models to better control high and rapidly rising hospital prices paid by for care delivered to commercially insured patients.

Additional materials in this series include “Americans Always Do the Right Thing: When Will the U.S. Finally Control Runaway Hospital Price Growth?” and the “Rate Regulatory Handbook: A Guide for State Implementation of Cost Constraint Models” 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.