Selective contracting in California: its effect on hospital finances

In 1983, the State of California used a modified form of competitive bidding to select hospitals that would supply inpatient care for the Medi-Cal (Medicaid) program. Selective contracting halted a long history of hospital price inflation and won significant price concessions for the state. While the state might have used the bidding program to get the cheapest possible care from the worst possible providers, the evidence shows that it was used to secure price concessions from mainstream hospitals that provided accessible, good-quality care. Various administrative tools of admissions review were important adjuncts to both utilization control and quality assurance.