The Public Interest

The high cost of hospitals—and what to do about it

Martin S. Feldstein

Summer 1977

THE explosion of hospital costs is now the central problem of our national health-care policy. Congress and the Administration are actively considering plans to impose direct controls on the costs of more than 7,000 individual hospitals.  More generally, now that Medicare and Medicaid provide benefits for the aged and the poor, it is the rapid increase of hospital costs that provides the primary impetus for national health insurance. Unfortunately, the current policy initiatives generally reflect a misunderstanding of why hospital costs have risen so rapidly and of how hospital-cost inflation is very different than the other types of inflation that trouble our economy.

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