Issues in current capital cost reimbursement to community hospitals by Medicare and Medicaid are described, and options for change analyzed. Major reforms in the way the federal government pays for capital costs—in particular substitution of other methods of payment for existing depreciation reimbursement—could have significant impact on the structure of the health care system and on government expenditures. While such reforms are likely to engender substantial political opposition, they may be facilitated by broader changes in the reimbursement system.

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