The effect of selective contracting on hospital costs and revenues.
OBJECTIVE
To examine the effects of selective contracting on California hospital costs and revenues over the 1983-1997 period.


METHODS
Annual disclosure data and discharge data sets for 421 California general acute care hospitals from 1980 to 1997.


METHODS
Using measures of competition developed from patient-level discharge data, and financial and utilization measures from the disclosure data, we estimated a fixed effect multivariate regression model of hospital costs and revenues.


RESULTS
We found that hospitals in more competitive areas had a substantially lower rate of increase in both costs and revenues over this extended period of time. For-profit hospitals lowered their costs and revenues after selective contracting was initiated relative to the cost and revenue levels of not-for-profit hospitals. The Medicare PPS has also led high-cost hospitals to lower their costs.


CONCLUSIONS
The more competitive the hospital's market, the greater degree to which it has had to lower the rate of increase in costs. A similar pattern exists with regard to hospital revenues. Both of these trends appear to result from the growth of selective contracting. It remains unclear to what extent these cost reductions were the result of increased efficiency or of reduced quality. Since hospital cost growth is sensitive to the competitiveness of its market, antitrust enforcement is a critical element in any cost containment policy.
Zwanziger
J
J
Department of Community and Preventive Medicine, University of Rochester Medical Center, NY 14642, USA.
Melnick
G A
GA
Bamezai
A
A
D002140:California; D003284:Contract Services / Q000191:economics* / Q000331:legislation & jurisprudence; D017721:Hospital Costs / Q000706:statistics & numerical data / Q000639:trends*; D006769:Hospitals, General / Q000191:economics*; D008329:Managed Care Programs / Q000191:economics* / Q000331:legislation & jurisprudence; D018854:Managed Competition / Q000191:economics*; D006278:Medicare / Q000191:economics / Q000458:organization & administration; D017059:Models, Econometric; D015999:Multivariate Analysis; D012044:Regression Analysis; D014481:United States