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Curriculum Center Browse Bibliography Build EPacket Pricing Structure Distribution Process Management Control in Nonprofit Organizations
Determination of Need Program
Young, David W.
Functional Area(s):
   General Management
   Health Policy
Difficulty Level: Intermediate
Pages: 30
Teaching Note: Not Available. 
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First Page and the Assignment Questions:

In late February, the seven commissioners of the Massachusetts Hospital Payment System Advisory Commission (HospPAC) were considering what changes, if any, they should recommend to the Massachusetts Legislature concerning the state’s Determination of Need (DoN) Program. Two years earlier, the Legislature had passed Chapter 495, a law that mandated greater competition in the state’s health care system. Having mandated increased competition, the Legislature recognized that the DoN Program might need either modification or elimination.The language of Chapter 495 had both created HospPAC and required it to assess the DoN Program. HospPAC’s report was due on March 15.


Following almost three decades of highly regulated health care, the Commonwealth of Massachusetts enacted landmark legislation that shifted the focus of its health care system toward greater competition among providers. The principal goals of Chapter 495 were (a) to use the health care market as a means to allocate resources, and (b) to control costs through a simpler, less regulated reimbursement system. Its main provisions were as follows:

  • It allowed third party payers freedom to contract with acute care hospitals without receiving prior approval from any public agency. The Massachusetts Hospital Association formerly was the bargaining agent for all hospitals; under Chapter 495 it was to be bargaining agent for non-acute hospitals only.
  • It encouraged consumers to make informed purchasing decisions by providing them with hospital-specific data on charges, costs, and provisions.
  • It allowed hospitals total flexibility in setting charges, as long as they are similar among all patients given comparable services. (Charge was defined as “the uniform price” for each specific service.)
  • It expected insurers to select health care facilities based primarily on cost, availability, and quality of covered services

HospPAC, which was created in Section 8 of Chapter 495, had several objectives that were related in some way to the Legislature’s concern with maintaining access and quality under the competitive health care market. The language concerning the DoN Program was quite broad:

To make an assessment of the Determination of Need Program and submit recommendations to the Legislature to repeal or modify the program to make it consistent with the hospital payment environment established by Chapter 495. This includes an assessment of the impact, if any, to the proximity to state borders on the competitive position of health care facilities.


  1. What should HospPAC recommend to the Legislature?
  2. What kinds of difficulties, political and otherwise, do you anticipate HospPAC will have in implementing its recommendations?
  3. What other groups, if any, should HospPAC talk to before submitting its recommendations to the Legislature?