Rate setting and hospital cost-containment: all-payer versus partial-payer approaches

This article explores the relative cost-containment potential of hospital rate-setting programs that differ in the extent of payer coverage. While the analysis has implications for the impact that Medicare's prospective payment system (PPS) may have on overall hospital costs, this study is based on a comparison of all-payer and partial-payer state systems in the pre-PPS era. Data on hospital costs are drawn from the 1982 and 1983 American Hospital Association's Annual Surveys of Hospitals. The data confirm that all types of mandatory rate-setting systems are effective systems of cost control. The findings suggest that all-payer approaches may have some short-run advantages in terms of reducing the growth in hospital costs but that, as of 1983, they had not attained a lower level of costs (measured on a per-admission basis) than partial-payer systems.