I came across an extremely readable short history of state level hospital pricing regulation. I highly recommend it for getting a broad overview of what was going on in the 70’s, and why it stopped.
The short version is that prices were gamed, particularly by urban and teaching hospitals. It created a situation where everyone, from the insurers to businesses to unions to the states themselves decided they could negotiate lower prices than the official rates.
The author notes the influence of politics on deregulation but suggests it was mostly symbolic, providing a rallying point for existing interests. I think that gives short shrift to the power of ideology. It’s a reverse Lake Woebegone effect- its mathematically impossible for everyone to negotiate costs below average, but everyone in the 80’s suddenly became convinced that’s what they could do. Whatever you call it, the Reagan ethos had an effect.
It’s kind of funny, you wouldn’t guess from the paper’s tone that 14 years later HMO would be a 4 letter word. The paper is actually a sort-of defense of regulation. From the conclusion:
…viewed by the standards of the era in which they were created, and seen in the context of the tools that were available and usable at that time, mandatory hospital rate-setting programs were able to leave an overall legacy of effective intervention. In future years, when the shape and effects of the emerging system are more clear, we may yet come to a greater appreciation of the challenges and accomplishments of this health policy epoch.
I wonder if the author expected we’d be taking another look at this.