Table 1.-Medical Care Price Index: Annual Percent Changes by Type of

Source: U.S. Department of Labor, Bureau of Labor Statistics, The Consumer Price Index.

fees index is available). Hospital daily charges, which had been
rising about 6 percent per year between 1960 and 1965, went up 16.5
percent in 1966-the largest annual increase in 18 years.

The rise in hospital daily charges was especially sharp in the second
half of 1966-11.5 percent as compared with 4.5 percent for the first
6 months. In contrast, physicians' fees increased 3.8 percent in each
half of 1966.

Medical care prices have been rising faster than other prices
throughout the postwar period. The rapid increase in medical care
prices in 1966 is at least partly a reflection of the widespread infla-
tionary pressures in the economy. The rate of increase in the Con-
sumer Price Index for 1966 was 3.3 percent-the largest in 15 years.

Table 2.-Consumer Price Index: Quarterly Percent Increases

Table 3.-Consumer Price Index: Percent Increases by Type of Component

III. Physicians' Fees

About 27 percent of the consumer's health dollar, on the average,
is spent for physicians' services. Physicians' fees have been rising
for many years, but the increase has recently accelerated. Accord-
ing to the Bureau of Labor Statistics Index, physicians' fees rose
7.8 percent in 1966, as compared with 3.8 percent for 1965.

This section will attempt to answer three questions: (1) What ex-
plains the rise in physicians' fees in the last 15 years? (2) What ac-
counts for the recent accelerations? (3) What is likely to happen
in the future?

Supply, Demand, and Doctors' Fees

A doctor is not an ordinary businessman and one might question
whether the price of his "product" is governed by the laws of supply
and demand. Medical services are extremely personal in nature and
their quality varies from physician to physician, from place to place,
and from year to year. Any price index necessarily reflects price
movements for only one of many possible sets of "physician visits"
or surgical procedures.

Moreover, there are strong traditions in medicine which affect phy-
sicians' price policy. Denying a patient necessary care because he
cannot pay the bill is considered unethical. Many physicians use a
sliding scale of fees-charging patients according to their ability to
pay. If an epidemic or disaster causes a temporary increase in the
demand for their services, physicians do not ration their time by
raising their fees-they simply work longer hours and postpone non-
essential services.

Nevertheless, it is clear that a substantial and sustained increase in
demand without a corresponding increasing in supply sooner or later
exerts pressure on physicians which leads them to raise their prices.
Moreover, doctors are likely to be able to raise fees by fairly large
amounts without losing many patients. The amount of medical care
which patients seek is relatively insensitive to changes in price for
several reasons: (1) A patient with an emergency medical problem
has no choice about whether to get treatment; (2) even in non-
emergency situations the patient often regards medical care as essen-
tial, not optional; (3) the patient seeking medical care usually lacks
information about the price of physicians' services or assumes that

more expensive care is better care; (4) the patient is often referred from one physician to another without being given a choice.

The Rapid Growth of Demand

In the period 1950 to 1965, population grew by 28 percent. Had there been no changes in medical technology, in education, in the incomes of patients, in the age distribution of the population, in urbanization or in residential patterns, the sheer impact of population growth would have added a substantial demand for physician care. But other things did not remain the same. In the period 1950 to 1965, disposable personal income per capita (in 1958 prices) increased by almost 34 percent. Based on the spending habits of Americans, an estimated 10-percent increase in consumer income results in at least a 3.3-percent increase in the demand for physicians' services. Therefore, this income increase would have added a minimum of 11.2 percent to the per capita demand for physicians' services.

The increase in the number of persons in the United States and the increase in income per person would, in the period 1950 to 1965, have added about 41 percent to the demand for physicians' services. Moreover, at least three additional factors increased even further the demand for physicians' services in this period :

1. The public's faith in doctors and desire for physicians' care
has increased as medical practice has become more effective.-
It has been said that at the turn of the century a random patient
with a random illness meeting a random physician stood per-
haps a 50-50 chance of benefiting from the encounter. Today,
the chance is much greater. Medical science has advanced.
Medical education has improved. As the public's faith in the
power of the physician and of the equipment and drugs that
he uses has increased more people have turned to physicians
for care. The public's desire for medical care has grown.
2. Changes in the characteristics of the population—as well as
in its size-have tended to increase the demand for physicians'
services.-Women go to doctors more than men; urban people
more than rural people; educated people more than unedu-
cated people; young children and old people more than the rest
of the population. In general, although the effect is not major
relative to the effect of the increase in income and the overall
size of the population, groups who use more physicians' serv-
ices are increasing relative to other groups.

3. Insurance coverage has expanded greatly.-The total number
of persons covered by surgical expense insurance increased
from 54 million in 1950 to 140 million in 1964; those covered
by regular medical expense plans with benefits for nonsurgical
physicians' fees increased from 22 to 109 million. Once a

patient has insurance, he tends to use more medical services. In emergency situations, of course, the patient has little choice about the amount of care he receives. But most situations are not emergencies; many medical procedures are optional or postponable. There is evidence that insured persons use more medical services than noninsured persons. One study, for example, showed that persons with health insurance were hospitalized for surgery 25 percent more often than persons without insurance. The growth of insurance covering physicians' fees seems likely to have added appreciably to the demand for physicians' services.

The Slower Growth of the Supply of Physicians

During the period 1950–65, the total number of active physicians increased by 33 percent. During this same period, however, there was a marked downward shift-from 72 percent in 1950 to 62 percent in 1965-in the proportion of all active physicians who were engaged in private practice. Increases occurred in the proportion of physicians employed as full-time staff in hospitals, full-time medical school faculty, and physicians whose primary activity is administration, laboratory medicine, public health, or research. The proportion of physicians in postgraduate training also increased.

Between 1950 and 1965, the number of physicians in private practice increased only 14.3 percent, and there was an actual decline in the total number of family physicians (pediatricians, internists, and general practioners) as more physicians went into other specialties.

The effective supply of physicians' services, however, rose faster than their numbers because physicians' productivity also rose.

Estimates of Physician Productivity

Some rough indicators of physicians' productivity can be found. Between 1947 and 1964, the median gross income of physicians in private practice rose at an annual rate of over 6.7 percent compared with an average annual increase in physicians' fees of 3.0 percent, as reported by the Bureau of Labor Statistics. Since the median gross income of physicians rose faster than the average fee per visit or procedure, physicians must either have been putting in more hours or their "productivity" (number of patients seen and quantity of care given) must have increased, or both.

Since there is no evidence that the average physician worked longer hours over this period, the difference between the rate of increase in

1

1 Source: "Medical Economics." traction of professional expenses. lection rates over time.

Median gross income is income before sub-
Adjustments were made for increases in col-