Costs and Price Competition in California Hospitals, 1980-1990

Concerns cost and price competition in California hospitals between 1980 and 1990. It explores California's experience with health maintenance and preferred provider organizations, which led to reductions in the growth of hospital costs. It also provides analyses to show that reductions of hospital costs were larger in competitive markets and that, if implemented on a national scale, selective contracting could be expected to reduce the growth of hospital costs even more rapidly than occurred in California. This article speaks of competition as a direct strategy for containing costs. However, it concludes that widespread consolidation of hospitals under the guise of increasing efficiency could undercut any possibility for competitive forces constraining providers' behaviors.