Medical Care and Its Delivery: An Economic Appraisal

There is a pervasive feeling of imminent crisis with respect to the delivery of medical services in the United States. Expenditures on medical care are rising without any offsetting decline in our mortality rates-which compare poorly with . those of many other countries.' The costs of medical care are increasing at an accelerating rate" Many big-eity hospitals, which service the poor, are in a state of financial distress." Medicare and Medicaid, the programs developed to enable the disadvantaged to obtain medical care, set off the current price spiral by creating a rapid increase in the demand for medical services while the supply of those services could be increased only slowly. The middle class now finds it difficult to obtain the kind of medical care it has come to expect, namely that of an interested, warm physician who is familiar with the family history. There is a perceived over-all shortage of nurses and physicians. Moreover, many concerned individuals believe that the existing physicians are not distributed well. They argue that there are relatively too few primary physicians and too many specialists, too few physicians in the inner cities and in rural areas, and too many in the affluent suburbs.

As a response to these and many other problems, government involvement in the delivery of medical services has increased. The share of personal expenditures on medical services financed by public funds rose from twenty-two per cent in fiscal 1966 to thirty-six per cent in fiscal 1969.' These funds have been expended on demonstration projects to experiment with alternative ways of delivering medical care and on innovative training programs, as well as on more traditional services. The trend is clear, and few people believe that government participation will decrease in the future.

The purpose of this paper is to discuss some aspects of the structure of the medical care industry, with special emphasis on some of the interrelationships that we believe are important and should be considered in formulating policy. Since medical services are desired not for their own sake but because they are an important input into the acquisition of health, we begin with a discussion of the nature of this relationship.