Prospective reimbursement and the hospital power equilibrium: a matrix-based management control system

Prospective rate-setting programs have not yet made significant inroads in containing hospital cost inflation. Because these programs are essentially hospital management control systems, they must be conceptually grounded in general management control theory if they are to succeed. Specifically, a rate-setting agency must: 1) perceive itself as "top management" of the hospitals being controlled, 2) incorporate hospital physicians into a matrix-based control structure that assigns physicians financial as well as clinical responsibilities, and 3) develop hospital budgeting and reporting systems that disaggregate costs according to their controlling forces, thereby permitting the alignment of responsibility with controllability.