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This study assesses the ability of managed care to contain hospital costs since the managed care backlash, using data from California's Office of Statewide Health Planning and Development for all acute-care hospitals in the state for the period 1991–2001. The analysis employs a long-differences design to examine cost growth before and after the managed care backlash. Results from the early 1990s are consistent with prior evidence that the combination of more competitive markets and high managed care penetration held down costs. Post-backlash, high managed care penetration no longer was associated with lower cost growth in the most competitive markets, indicating that the synergistic effects between managed care and hospital competition no longer may exist.