Competition in the Health-Care Marketplace: A Beginning in California

California has enacted legislation that has been termed a "revolution in health care." 1 State lawmakers passed three measures designed to intensify competition among hospitals and physicians in the health-care delivery system. 2 Confronted with a potential $2-billion deficit in its proposed $27-billion state budget, recurrent cost overruns in the Medi-Cal (Medicaid) program, and a whopping 17.9 per cent increase in hospital costs in 1981, the legislature voted to authorize both the government and private insurance companies to negotiate prepaid contracts with hospitals and providers as a "tool" to contain costs. Although negotiated contracting is not a new method of cost control, . . .