Rochester's innovative regional approaches to health care planning dating to the 1940s attracted attention around the state and the nation. With health care costs rising rapidly during the 1960s and 1970s, federal and New York State officials responded favorably to Rochester-initiated proposals for cost containment. This attention resulted in several demonstration projects—on how to contain hospital costs, to divert chronically ill and elderly persons from acute and long-term institutional care, and to provide quality care in the community for the chronically mentally ill who had previously received care in public institutions. MAXICAP, a federal-state-local demonstration between 1976 and 1978, was designed to test the assumption that prospective payments could contain hospital costs. MAXICAP illustrates the impacts of the local legacy of community engagement and regional planning, and the important roles of the state and federal governments in supporting locally conceived plans. Moreover, the failure of MAXICAP to move from planning to implementation demonstrates the prevalence of tensions among local participants between community and institutional perspectives.

The Creation of MAXICAP

MAXICAP was a demonstration project that entailed voluntary participation by twenty-four hospitals in the Finger Lakes region to contain costs. The catalyst for MAXICAP was the rapid rise in hospital costs across the United States during the 1960s and 1970s. At the national level, “the proportion of the Gross National Product devoted to hospital care nearly doubled between 1960 and 1975, rising from 1.7 percent to 3.2 percent.” The President's Council on Wage and Price Stability in 1976 noted that “price increases for medical care services [from] 1966 to 1975 … significantly outpaced increases in other consumer service prices, with the disparity accelerating … rapidly.” At the state level, hospitals were widely affected. Between 1975 and 1980, expenditures rose more rapidly than revenues for eight of every ten New York hospitals, with the total loss increasing by 9 percent in one year (1977–78) alone. The Health Systems Agency noted, “Within the Finger Lakes nine-county region, short-term, general hospital expenses increased by approximately 318 percent during the period 1964 through 1974.” Finally, in Rochester's hospitals—despite a local history of rational planning, community rating, and low inpatient utilization rates—expenditures also increased in the late 1960s and throughout the 1970s.