The Effectiveness of a Regulatory Strategy in Containing Hospital Costs. The Ontario Experience, 1967-1981

This study documents the increases in real inputs (e.g., labor and equipment) employed in Ontario's hospital sector between 1968 and 1981--a period of universal government-financed hospital insurance and a government regulatory strategy involving global budgeting. Total expenditures in Ontario increased by only 16 per cent in terms of real inputs, as compared with an increase of 101 per cent in the United States. Real inputs per patient-day increased at a mean annual rate of 0.68 per cent in Ontario versus 5.19 per cent in the United States (P less than 0.001). Real inputs per admission decreased at a mean annual rate of 1.12 per cent in Ontario, as compared with an increase of 4.15 per cent in the United States (P less than 0.0001). We conclude that regulation can contain the growth of real inputs employed in the hospital sector even in the face of an incentive structure that does not promote cost consciousness on the part of patients or physicians. Although the effect of this strategy on the quality of care is unknown, so far it appears to have been politically acceptable in Ontario.