Medicaid hospital spending: Effects of reimbursement and utilization control policies

Numerous Medicaid hospital spending policies were developed following the passage of the 1981 Omnibus Budget Reconciliation Act. The impact of reimbursement and utilization control policies on Medicaid hospital spending was measured using Medicaid program data for 1977-84. Medicaid prospective reimbursement was found to contain real hospital spending by controlling spending per recipient. However, sustained reductions in the growth in real Medicaid spending are achieved only when Medicaid is included in a broader regulatory framework, not when it is the sole regulated payer. Prior authorization for specific services reduces growth in hospital spending by reducing the growth in inpatient recipients.