Hospital rate regulation: American and foreign comparisons

Rate regulation in the United States usually is inspired by widespread indignant pressures to protect the public against venal exploitation. Rate regulation of American hospitals does not ride such a wave of outrage but is motivated by the need to restrain Medicaid spending and insurance premium increases in some states. Hospital rate regulation in America lacks strong political support, makes many politically prudent concessions to hospitals, and is often threatened by repeal. Since Americans distrust regulators and since individual scrutiny of so many hospitals is burdensome and contentious, they often seek automatic formulae that will produce equitable results by rational calculation. In contrast, rate regulation in Europe is a method of refereeing between hospitals and alert third parties. Hospitals' prospective budgets are always scrutinized by regulators. Guidelines are transmitted by government to link public policy to hospital payment, and the regulators apply the guidelines to each hospital's individual situation. The system results in less contention and more stability in European than in American regulation. Certain features of European hospital practice have kept hospital costs high, but the regulators are now reducing annual increases in costs below America's. In order to reduce cost increases further, Europe is moving toward global budgeting and public grants of hospitals' operating costs, instead of regulation of unit rates. However, regulators may still be essential to scrutinize hospital prospective budgets and to investigate the merits of the claims by individual establishments.