This paper approaches the design of a regional or statewide hospital rate-setting system as the underpinning of a larger system which permits a regulatory agency to satisfy the requirements of various public laws now on the books or in process. It aims to generate valid interinstitutional monitoring on the three parameters of cost, utilization, and quality review. Such an approach requires the extension of the usual departmental cost and budgeting system to include consideration of the mix of patients treated and the utilization of various resources, including patient days, in the treatment of these patients. A sampling framework for the application of process-based quality studies and the generation of selected performance measurements is also included.