Effects of Selected Cost-Containment Efforts: 1971-1993

In this article, we review five health care cost-containment efforts from 1971 to the present and summarize key research findings on the effects of each on cost, quality, and access. These efforts include the Nixon Economic Stabilization Program (ESP), Carter-era hospital cost-containment efforts, Medicare hospital and physician payment, and State hospital ratesetting programs. The purpose of these efforts was to constrain the growth of health care spending by regulating or controlling prices or payments to providers of health care. Based on the experience of all five programs, we conclude with an analysis about the effectiveness of these kinds of initiatives. This synthesis responds to the interest on the part of policymakers to better understand how current cost-control efforts can benefit from those of the past at both the Federal and State levels. In research spanning two decades, considerable knowledge has accumulated, though many outstanding questions remain. In general, this research shows that price controls can be effective but also that their effectiveness is constrained by provider responses to the incentives the controls create. Not surprisingly, research suggests that the most effective approaches also tend to have the broadest scopes: all-payer versus individual-payer systems, aggregate payment controls versus per service controls, and total payment limits (which address the base) versus only rate-of-increase limits. This greater effectiveness occurs because the more aggregate or all-encompassing approaches limit the ability of providers to offset cost pressures by raising prices to other payers or by increasing volume of care. Whether or not such controls merit serious consideration today and how they compare or may be combined with other strategies for cost containment are questions that exceed the scope of this article. The sources for this article, annotated and organized within each of the five costcontainment efforts, are listed in the Appendix.