Competition versus regulation: constraining hospital discharge costs.

A fundamental choice many states now face when implementing their cost containment efforts for the health field is to weigh the extent to which they should rely on either competitive or regulatory strategies. To study the efficacy of America's current market-driven approaches to constrain health expenditures, an analysis was undertaken of 1993 hospital discharge costs and related data of the 15 states in the United States with the highest percent of health maintenance organization (HMO) market penetration. The study's major finding was that a facility operating with a lesser number of paid hours was more critical in reducing average expense per discharge than whether the hospital was located in a "competitive" or a "regulated" state. What is proposed herein to enhance hospital cost containment efforts is for a state to almost simultaneously use both market-driven and regulatory strategies similar to what was implemented in California over the last three decades and in Germany for the last 100 years.