The effects of hospital rate-setting programs on volumes of hospital services: a preliminary analysis

This article describes a preliminary study of the effects of State rate-setting programs on volumes of hospital services, specifically admission rates, occupancy levels, and average lengths of stay. A volume response to rate-setting may be anticipated as a result of program effects on hospital costs or charges as well as on hospitals' behavioral incentives. We analyzed data for samples of hospitals and counties in States with and without rate-setting programs for the 9-year period 1969 to 1978. The results suggested that rate regulation has brought about, in some States, an increase in hospital occupancy by increasing patients' lengths of stay. Few programs have had a measurable effect on the admission rate. Programs that regulate per diem rates seem to produce more consistent and predictable volume effects than those controlling charges. The findings were generally consistent with prior hypotheses and partially account for earlier findings regarding the effects of rate-setting programs on hospital costs.