This paper analyzes the politics of hospital payment over the last decade. The authors explain how provider interests and judgments became a standard for appropriate hospital payment; the impact of that standard on hospital costs; and the political obstacles to imposing an alternative standard and controlling hospital costs. The authors draw lessons from this experience, here and in other countries, to propose an alternative approach to hospital payment that would allow policymakers, accountable to the public, to make explicit choices about the level and nature of hospital expenditures.

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