Volume 8, Number 2 (Spring) 1973
Davis, Karen. 1973. "Theories of Hospital Inflation: Some Empirical Evidence." Journal of Human Resources 8(2):181-201.
This article examines three alternative hypotheses of hospital inflation: the demand-pull hypothesis, and cost-plus reimbursement hypothesis, and the labor cost-push hypothesis. The theoretical foundation of the cost-reimbursement hypothesis is explored; hospitals desiring to maximize quantity of hospital services or profits will not respond to cost-plus reimbursement by raising costs unless nearly all patients are covered by the plan. Empirical estimation of hospital average costs and average hospital wage rates yield no support for the cost-reimbursement hypothesis. A significant upward shift in hospital costs and hospital wages in the Medicare period, however, was obtained.
The author is a Research Associate at the Brookings Institution. The author wishes to thank Herbert E. Klarman, Marian Krzyzaniak, and Stanley Wallack for helpful comments and the Social Security Administration for financial support. The research assistance of Julian Pettengill is gratefully acknowledged. The views expressed here are those of the author and do not necessarily reflect those of the staff, officers, or trustees of the Brookings Institution.
© 2003 by the Board of Regents of the University of Wisconsin System
US ISSN 0022-166X