Health Affairs hospitals Competition versus regulation : its effect on

While factors other than competition and regulation influence hospitals’ behavior, these two strategies have dominated the health policy debate. To examine the impact of these two competing strategies on patients and hospitals, the authors examine experiences in Baltimore, which has followed a regulatory strategy since the early 1970s, and Minneapolis/ St. Paul, which has pursued a competitive strategy during the same time frame. Compared with the national average, both strategies had only a minor impact on containing hospital costs per capita, but they influenced hospital productivity, cost per discharge, and utilization in different ways. Competition versus regulation has been a fundamental health policy choice since the mid-1970s. In this paper we examine the long-run impact of these two policy alternatives by examining two metropolitan statistical areas (MSAs), Minneapolis/ St. Paul, Minnesota, and Baltimore, Maryland, which have been in the vanguard of the competitionversus-regulation debate since the early 1970s. After reviewing the policy directions taken by Minneapolis/ St. Paul in the 1970s and 1980s, John Iglehart concluded that the “Twin Cities of Minnesota stand out as a metropolitan area where private-sector interests have been leading architects of a redesigned health care landscape,” believing that adherence to market principles is a preferred strategy to government regulation On the other hand, Baltimore is located in a state that has followed a regulatory strategy since the early 1970s. Maryland established the first and now has the only all-payer hospital prospective payment system, has promulgated regulations that forbid hospitals from offering price discounts (except for relatively minor discounts for specific reasons), maintains an active certificate-of-need (CON) program, has comprehensive regulation of utilization review, and has more mandated health benefits than any other state. In comparing only two MSAs, we recognize that there are many factors in addition to competition and regulation that could influence behavior, that it is impossible to control for all exogenous factors, and that neither geographic area or political jurisdiction has adopted a purely competitive or purely regulatory strategy. However, we believe that an examination of these two MSAs can suggest some of the long-term effects on patients and hospitals of choosing one strategy over the other. In this paper we compare the evolution of the regulatory, financing, and delivery systems in the Baltimore and Twin Cities MSAs from 1971 to 1990. We then discuss the effects of competitive and regulatory strategies in the two areas on overall health care spending and hospital costs, use, and operations. We have chosen to focus on hospitals because both the regulatory and competitive strategies have targeted this sector. Study methods. We obtained data on community hospital characteristics from the 1972 to 1991 editions of Hospital Statistics and the Guide to the Health Care Field, both published by the American Hospital Association (AHA). Demographic information on the two MSAs was obtained on O cber 0, 2017 by H W T am H ealth A fairs by http://conealthaffairs.org/ D ow nladed fom 72 HEALTH AFFAIRS | Spring 1993 from Statistical Abstract of the United States, 1990, and we used the published estimates of the annual percentage change in population to interpolate from 1971 to 1989. Information on the regulatory environment in each state was compiled by the American Association of Retired Persons (AARP) and is reported in Reforming the Health Care System: State Profiles 1990. 7 The number of health maintenance organization (HMO) enrollees was obtained from Interstudy Edge: Managed Care, A Decade of Review. We adjusted for age and sex differences in the two MSAs using the direct method. The Medicare case-mix index is the weighted average (by Medicare discharges) of the Medicare case-mix values for each hospital in the MSA.