Ever increasing hospital costs burden both the patient and the state. Those patients fortunate enough to afford health insurance pay higher premiums for it, while the uninsured must absorb a substantial amount of the increase in hospital costs. The state also encounters greater expenditures in the Medicare and Medicaid budgets. To address the problem of increasing hospital costs, Massachusetts enacted a rate setting program in 1975 in which a rate setting commission reviews annual hospital budgets and determines prospectively what hospitals may charge the public for certain services.
In 1979, Massachusetts implemented a refinement of this procedure, known as groupings-based charge setting. By scrutinizing the reasonableness of underlying costs on which proposed charges were based, the groupings procedure sought to decrease the rate of increase of costs and charges while indirectly decreasing the rate of increase for Medicaid and Blue Cross reimbursement. Although the procedure should prove efficacious in future years, its initial development and use in Massachusetts encountered implementation problems.
This Note examines the initial groupings procedure in order to reveal the errors future programs should avoid in designing and implementing groupings. It explores why and how Massachusetts groupings were ineffective and traces the weaknesses in the administrative process. Additionally, the Note examines the need to improve the development and implementation of groupings rather than relying on post-implementation legal challenges to groupings regulations. Finally, this Note proposes a model for effective groupings that coordinates state-wide incentives for cost control, more accurately defines reasonable cost for purposes in addition to charge control, and seeks to avoid the mistakes of the initial Massachusetts groupings.