Interests and ideas in health policy: The fate of hospital rate setting in four states.

From its once pre-eminent position in state health policy, hospital rate setting has declined in use to a handful of states today. This study examines prospective hospital rate setting in four states that established aggressive programs. The decisions to deregulate by Massachusetts and New Jersey state governments, along with an anticipated decision in New York in 1996, are examined. Maryland state government's choice not to deregulate is also explored. Two rival theories are used as potential explainers of these developments: the theory of economic regulation emphasizing the role of interest groups, and the punctuated equilibrium model of policy change emphasizing policy ideas. Results. Hypotheses of the theory of economic regulation are not supported. While shifts in interest group support for regulation preceded deregulation, clear evidence that rate setting benefited hospitals more than consumers was not found; public officials, were not found to only respond to interest group agendas. Hypotheses of the punctuated equilibrium model are supported. Identifiable policy ideas could be clearly associated with rate regulation and the move to deregulation; clear institutional change is associated with each deregulation. New actors were identified who helped to undermine the rate setting policy monopoly. Factors associated with deregulation include: (1) a conflict with growing managed care systems in rate setting states; (2) political change from Democratic to Republican control in key governmental power centers; (3) regulatory failure and increasingly Byzantine reimbursement rules that undermined support; and (4) changed interest group support for deregulation. Maryland's record stands in contrast to the deregulated states. Lessons from rate setting include: (1) deregulation signifies an evolution to more advanced forms of prospective payment, chiefly capitation instead of per diem or per case methods; (2) the decline indicates a shift to a different role for state government in health regulation, including an explicit rejection of the public utility model; (3) rate setting's history demonstrates the broad ability of regulated entities to manipulate reimbursement systems; and (4) the experience indicates some strengths in state government to maintain systems to control costs and improve access.Ph.D.Health and Environmental SciencesHealth care managementPublic administrationPublic healthSocial SciencesUniversity of Michigan, Horace H. Rackham School of Graduate Studies, School of Public Healthhttp://deepblue.lib.umich.edu/bitstream/2027.42/129917/2/9700495.pd