The Public Interest

How shall we pay for hospital care?

Joseph P. Newhouse & Vincent Taylor

Spring 1971

MONTH after month, the rising cost of medical care has led the consumer price index to new highs. In the wake of these increases, a lively public debate has ensued. Participants have identified numerous viUainsu”fee-gouging” physicians, the nations “anarchic” hospital system, and “avaricious” drug companies—and suggested numerous cures. In order to stop the escalation of medical costs, it has been proposed that we audit the tax returns of physicians who receive more than a specified amount from Medicare and Medicaid, subject all hospitals to central planning as a precondition for reimbursement under public insurance programs, and reduce the patent protection which drug companies enjoy. Yet all such proposals are incapable of achieving their goal because the reasoning on which they are based ignores the central cause of the high and rising price of medical care. 

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