Hospital Cost Function Analysis - Implications for Cost Controls

The cost of a day in a United States hospital has been increasing on the order of 13 to 15 percent per year since the passage of the Medicare and Medicaid legislation. From August 1971 to May 1974 a number of regulations designed to lower the rate of cost increase in hospitals were implemented. These regulations represent a major attempt to contain hospital costs and are the only nationwide experiment that has been executed, although a number of small reimbursement experiments have been run. The results of this experiment must be evaluated carefully to determine whether regulations of this sort can be effective.