Regulatory intensity and hospital cost growth

This article parameterizes and examines the regulatory intensity of New York's all-payer rate setting system. The model, using hospital level data, compares the effects of specific features of rate-setting designed to promote cost containment. Two indicators measuring regulatory intensity were examined; the extent of hospital-specific disallowances, and how frequently the base year was adjusted (the degree of prospectivity). The results indicate that both the degree of prospectivity and the extent of disallowances importantly affect cost growth. Hospitals, when constrained, primarily achieved cost savings through reductions in non-medical personnel.