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A REPORT TO THE PRESIDENT ON MEDICAL CARE PRICES BY THE DEPARTMENT OF HEALTH,, EDUCATION, AND WELFARE FEBRUARY 1967
Last August, you asked me to study the reasons behind the rapid rise
Medical prices ve been rising for many years at a rate substantially
The Report attributes these price rises to the pressure of the rising demand for medical services, the relatively slow growth in the supply of physicians, rising wage costs in hospitals without commensurate increases in productivity, and the increasing complexity of medical care provided to the patient.
The Report holds out little hope for an early end to medical price
Nevertheless, steps can be taken to moderate the rise in medical prices by using medical resources more efficiently. To this end, the Report recommends :
1. The establishment of a National Center for Health
Services Research and Development to discover and
The encouragement of the group practice of medicine.
3. Strong Federal support for State and area-wide planning
for the efficient use of health resources,
Re-examination of the reimbursement formulas under Medicare and Medicaid in an effort to design formulas which increase the incentives to health institutions to operate efficiently.
The appointment of a Presidential comm18810n to review Federal programs of support for health institutions with an eye to the efficient distribution of such institutions.
6. Training and use of physician a8818tants and other innova
tions in medical education and the efficient use of medical manpower.
A study of frequently prescribed drugs to determine the
Implementing these recommendations will demand the concerted efforts of the medical community, the insurance industry, State, local, and Federal officials, and concerned public groups.
This Study represents the collective efforts of many people.
Substantial contributions to the data and analysis were received from the Bureau of Labor Statistics, especially Arnold E. Chase and his staff; the Public Health Service, especially Agnes Brewster and her staff; and the Social Security Administration, especially Ida Merriam and her staff. Ideas and advice from the Council of Economic Advisers, the Department of Labor, the Department of Justice, and many parts of the Department of Health, Education, and Welfare are reflected in the Report. Rashi Fein of the Brookings Institution and several other experts outside the Government were extremely helpful.
W1111 am Gorham
for Program Coordination
Part I. Summary and Recommendations
Cause for Concern
The price of medical care rose rapidly in 1966:
The Bureau of Labor Statistics index of medical care prices rose 6.6 percent.
The index of hospital daily room rates went up 16.5 percent. Increases of this magnitude cause severe hardship to individuals in need of medical care, whether they pay the prices directly or indirectly through higher insurance premiums. Medical price increases make Government-financed medical care programs more expensive for the taxpayer. There is nothing new about rising medical prices.
Since World War II, medical prices have been rising considerably faster than consumer prices generally. But the 1966
increases were the largest in many years. The purposes of this report are to— • identify the causes of the longrun upward trend and the recent
acceleration in medical prices; • estimate what is likely to happen to medical prices in the
future; and • recommend Government actions to moderate the price rise and
to encourage greater efficiency in the delivery of medical care.
Why Doctors' Fees Are Rising
More people are seeking doctors' services more often.
Increases in population, rising personal income, wider private and public insurance coverage, and other factors contribute to
rapid increases in demand for physicians' services. The number of active physicians is rising relatively slowly.
Between 1950 and 1965, the number of family physicians (pediatricians, internists, and general practitioners) actually
declined. In the face of rising demand for their services, physicians have been
• seeing more patients per week; and
raising their fees. Physicians' fees—like many other prices—accelerated in 1966.