UC Berkeley

This study used 1982-1986 data on 262 private community hospitals to evaluate the effects of selective contracting for inpatient services by California's Medicaid program. Selective contracting by Medicaid significantly reduced the rate of inflation in average costs per admission and per patient day, while slightly increasing average lengths of patient stays. Private sector contracting also reduced cost inflation rates significantly and caused small, non-significant, reductions in lengths of stays. Hospital savings in 1986 due to Medicaid selective contracting were $836 million, 7.6% of what hospital expenditures would have been in the absence of contracting.