California should be cautious about enacting comprehensive rate regulatory legislation for hospitals. What is needed now is a period of experimentation with different methods to achieve cost containment, with the full participation of physicians. These conclusions are the outcome of a study of the California Health Facilities Commission conducted by the author (RAND Report R-2220). This study found (1) health facility cost regulation was determined by the response of the hospital industry to political pressure; (2) the Commission's behavior was substantially influenced by the Administration in power; and (3) there is a bureaucratic conflict between the Commission and the Department of Health. Future regulatory efforts will succeed politically only if a more effective constituency is mobilized, and managerially only if problems of technical implementation are solved. Physician cooperation is necessary to make cost containment a reality. They should work with others in the health industry to devise methods that encourage price and cost consciousness and reward those who practice cost effectiveness.