holding down increases in fees, much less reducing them. Freedom to raise
fees gives hospitals the flexibility to shift costs.
If we do not succeed in reducing prices (or their rate of increase, as the
case may be), we face the prospect that an unbalanced stress on reducing
quantity of services and procedures could go too far, in particular because
DRG compensation makes inadequate allowance for the initial condition of
the patient or for the severity or complexity of the illness or procedure. In
fact, such a stress makes the M.D. more prone to raise fees, as the only way
of maintaining or increasing earnings. If we could restrain prices, there
would be less incentive for hospitals to reduce the quantity of services
rendered, inasmuch as quantity would then be the preferred, if not the only,
means of preserving or increasing earnings.
And then there are the veterans' hospitals--171 of them, costing $17
billion a year, most of them of poor quality, most of them scampering for
patients to fill their beds. They should be closed. There may be a few areas
where the presence of a veterans' hospital could preclude the need to build
another, if this hospital were open to the general public; but then it would
cease to be a veterans' hospital. Veterans' hospitals, like the Rural Electrification Administration, are evidence that bureaucracies live forever even
though their job is done.
Irving Leveson, and
Deborah Sarachek, "The Production of
Health: An Exploratory Study," Journal of Human Resources 4 (Fall 1969): 411-
36. See also Charles T. Stewart Jr., "Distribution of Medical Inputs across Standard
Metropolitan Statistical Areas and Implications for Health," in Advances in Health Economics and Health Services Research, ed.
Richard Scheffler and
Louis Rossiter, 191- 220 ( Greenwich, Conn.: JAI Press, 1982).
Joseph Newhouse and
L. J. Friedlander, "The Relationship between Medical Resources and Measures of Health: Some Additional Evidence," Journal of Human Resources 15 (Spring 1980): 200-218.
Rick Carlson, The End of Medicine ( New York: Wiley, 1975), 232-40.
Rosemary Stevens, American Medicine and the Public Interest ( New Haven, Conn.: Yale University Press, 1971), 354.
R. Jeffrey Smith, "Carter Attempt to Limit Doctor Supply Faces Tough Going in
Congress," Science 203 ( February 16, 1979): 122. William Metz, "Califano to Medical
Schools: Cut Back Class Size," Science 202 ( November 17, 1978): 726.
Richard Lyons, "AMA Expects the Doctor Shortage to Get Worse," Washington
Evening Star and Daily News, November 23, 1972, B5.
David Kindig, "Specialist Glut, Generalist Shortage," Washington Post, September 7, 1994, A21.
Edward F. X. Hughes,
John Jacoby, and
Eugene Lewit, "Surgical
Workloads in a Community Practice," Surgery 71 ( March 1972): 315-27.
Rita Ricardo Campbell, Economics of Health and Public Policy ( Washington,
D.C.: American Enterprise Institute, 1971), 11, 95.