The objective of this research is to investigate the impact of mandatory state rate-setting for hospitals on total health care expenditures at the state level. This analysis of total, hospital, and non-hospital personal health expenditures will use as dependent variables the recently-published series on expenditures for personal health services by state prepared by the Health Care Finanacing administration. Although several studies indicate that rate-setting contains hospital expenditures, there is much that is still not known about the impact of hospital rate-setting. As states respond to pressure to limit their spending and contain costs for the private sector, some have recently adopted rate-setting and others are cnsidering it, but they have inadequate information for decision-making. This research will investigate the impact of state rate-setting on total personal health care expenditures, which have not been done to date. It will also investigate whether or not these programs have shifted expenditures from one setting to another, and the magnitude of these effects, if any. It will also be the first study to treat rate regulation as an endogenous variable and test to see if this changes estimated effects of rate-setting on hospital expenditures.
