from organ transplants to magnetic resonance imaging—have contributed significantly to health care cost escalation, although this assumption is difficult to document explicitly (Altman and Wallack, 1979; Garrison, 1991; Weisbrod, 1991; CBO, 1992a; Newhouse, 1992). In most analyses of the factors contributing to cost increases, changes in technology are not examined directly. Rather, they tend to be both intermingled with price effects (e.g., when an expensive CAT scan substitutes for an X-ray) and treated as part of a residual category to the extent that they add to the volume of medical procedures and services (e.g., when both an expensive CAT scan and an expensive MRI are substituted for or added to a less costly and generally less useful X-ray). Nevertheless, several recent analyses suggest that the development and use of new technologies—more than the increasing use of existing technologies—constitute a major source of cost increases (Schwartz, 1987; Weisbrod, 1991; Berenson and Holahan, 1992; CBO, 1992a; Newhouse, 1992).

Public and private financing and management practices are also cited as major contributors to the ''cost problem," although these factors may more easily explain high levels of health care spending than the recent escalation in the rate of health care expenditures. The practices commonly mentioned in this regard include provider payment systems that do not encourage the efficient use of resources (e.g., open-ended retrospective third-party reimbursement), insurance coverage and tax subsidies that may encourage excessive consumption, increasing malpractice litigation, excess capacity in hospital beds and in certain medical specialties, nonprice competition among providers, the ability of practitioners and providers to generate demand for an even broader set of medical services, and the difficulty of conditioning the spread of new technologies on demonstration of their cost-effectiveness. The public views such explanations of high costs as implying greed and waste on the part of physicians, drug companies, and insurers, and this viewpoint tends to limit the public's support for cost-cutting strategies that focus on any other target (Immerwahr, 1992).


The current policy preoccupation with medical care costs is primarily a product of the last quarter century.1 Before the late 1960s, both public and private sector decisionmakers concentrated on expanding the supply of medical services (both physicians and hospitals) and widening access to these ser-


Much of the discussion in this section follows that presented in IOM (1989). Chapter 2 of this report describes early strategies to contain health benefit costs.

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