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July 27, 2017


When Medicare was first established in 1965, the payment terms established by Congress were overly generous to the medical industry, making Medicare unnecessarily costly. Congressional representatives agreed to unreasonable payment terms as a trade-off in exchange for the medical industry's support of Medicare.  It has proved to be a very costly mistake.


For instance, suppose a hospital bought an X-ray machine for $500,000. The federal government would reimburse the hospital for the cost of the machine (through depreciation reimbursements). This financial arrangement applied to no other industry in the U.S.


Obviously these reimbursements to hospitals imposed an unfair burden on taxpayers.  But of even greater impact, they inflated the cost of medical care.  The reimbursements encouraged hospitals to buy unnecessary equipment and more costly equipment and encouraged hospitals to prescribe use of the equipment more than was necessary. 


The depreciation reimbursement may have been one of the most egregious entitlements and in 2001 it was cancelled. It is worth examining to what extent our current health reform bills provide unreasonable subsidies, tax credits, and entitlements to the medical industry in exchange for its support.  It is worth examining how much these benefits are costing taxpayers and inflating the cost of medical care.  



Starr, Paul, The Social Transformation of American Medicine , Basic Books 1982 (winner Pulitzer Prize 1984), pages 411-413.


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