As the costs of the American health care system escalate, there is a tendency to identify the biggest cost item and attempt to reduce it to a manageable size. However, since that biggest cost item, the hospital, is a creation of uncontrolled forces within the system as a whole, attempts to manage costs will be limited in effectiveness. The hospital is the end product of an uncontrolled system, a product that displays little understanding of the economic principles of trade-off, efficiency, and productivity.

To limit spending in the hospital care system, controls must be rooted in an analysis of the forces that have shaped the hospital's present form and structure. Factors to be considered are those that have defined what a “good” hospital is, who its real consumers are, and what economic and quality control factors must be part of the entire health system.

This article suggests modification of public policies relative to medical manpower and insurance, and recommends adoption of reimbursement by Diagnostic Related Groups.

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