The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
OF PHILADELPHIA
MEDICAL CARE PO LICY:
A DO SE OF COMPETITION
FOOTING THE
MEDICAL CARE BILL
THREE-TIER THERAPY
THE FED IN PRINT
SEPTEMBER 1971
IN THIS ISSUE
Providing the medical care society deems
essential is no easy task. Policymakers must
come to grips with the problems of steadily
rising costs, uneven access to facilities, and
providing care for the poor. This issue at
tempts to bring some of these problems into
focus and suggests alternative directions
policy might take.
Medical Care Policy: A Dose of Competition
. . . Harnessing market forces to the medical
care industry may prove a potent antidote
to its current afflictions.
Footing the Medical Care Bill
. . . Who ultimately pays for rising medical
outlays?
Three-Tier Therapy
. . . Distribution of medical facilities in the
District suggests a major restructuring of the
medical care delivery system might result in
substantial medical gains.
BUSINESS REVIEW is produced in the Department of Research. Ronald B. W illiams is Art Director. The authors will
be glad to receive com m ents on their articles.
Requests for additional copies should be addressed to Public Information, Federal Reserve Bank of Philadelphia, Philadelphia,
Pennsylvania 19101.
FEDERAL RESERVE BANK OF PHILADELPHIA
Medical Care Policy:
A Dose of
Competition
by W. Lee Hoskins
Although doctors long ago abandoned
the practice of bloodletting, Americans claim
they are still being bled by the medical sec
tor — through their wallets. As the cost of
getting ill continues to rise at an unprece
dented rate, the cry that Government bind
the wound has reached new decibel levels.
Thus, Congress is currently sifting through a
host of palliatives designed to provide med
ical care on the basis of “ need" rather than
ability to pay (see box).
Government programs that attempt to
achieve this goal by simply injecting massive
doses of dollars into the veins of the exist
ing medical care systems may be, at best,
inefficient, and, at worst, self-defeating. The
underlying issue at stake is the ability of the
medical care industry as it currently oper
ates to deliver the increased level of services
that may be demanded under Governmentfinanced programs or insurance. Success in
achieving more or better medical care for
every American and the cost to society will
depend crucially upon the impact of the
program selected on the organization of the
medical care delivery system.
3
BUSINESS REVIEW
SEPTEMBER 1971
MAJOR CONGRESSIONAL PROPOSALS FOR A HEALTHIER NATION
Human Security Program
A national health insurance plan financed partly from Social Security taxes and
partly from general revenues, the Human Security Program would insure all
citizens comprehensive health care by 1973. The plan would require no minimum
fees or deductibles, and the benefits would run the gamut from preventive care
to home nursing care. Cost estimates range anywhere from $53 billion to $60
billion by 1974. Employees would pay a 1 per cent payroll tax on their income
up to $15,000 annually, and a 3.5 per cent tax would be levied on employers.
The Federal Government would match the employers' portion from general
revenues. The Government would finance and administer the program, but serv
ices would still be provided by the private sector.
Medicredit
A program of income tax credit for private health insurance, Medicredit would
be based on the individual's tax liability. The program could provide tax credit
anywhere from 0 to 100 per cent, thereby virtually guaranteeing health care which
is free to the poor and paid by the Federal Government. Under this plan, the
Medicare program would not be altered, but the Medicaid program would be
eliminated. Private insurance plans would have to meet certain standards to
qualify for the program, and individuals (except the poor) would have to pay
deductibles. The cost to the Federal Government is estimated at $4.5 billion.
National Health Insurance and Health Services Improvement Act
This plan encompasses a program of health care for the entire population
similar to the present program for the elderly, but with coverage provided by
private carriers. Contributions of .7 per cent each would be made by both em
ployers and employees, with a matching contribution by the Federal Government
of .7 per cent. In 1973, this percentage would increase to 2 per cent for all and
3 per cent by 1975. Subscribers would be entitled to 90 days' hospital care, post
hospital care, all physician-related services, with appropriate deductibles and coinsurance. As in the Human Security Program, these taxes would be levied only
upon the first $15,000 of earnings of employees and on the total payroll of
employers. The estimated cost to the Federal Government by 1975 is $68.1 billion.
Individuals can avoid the Government plan by purchasing an approved private
health insurance plan. The contribution of the poor would be assumed by the
Federal Government.
Administration's Health Plan
(1) The main thrust of this plan is passage of the National Insurance Standards
Act, which requires employers to provide their employees with insurance cover
ing up to $50,000 of medical expenses for each worker and each family member.
Effective in 1973, employers would initially assume 65 per cent of the insurance
cost, increasing to 75 per cent by 1976. Employers' payments would be tax de
ductible. Beneficiaries would be required to pay 25 percent of the costs up to
4
FEDERAL RESERVE BANK OF PHILADELPHIA
$5,000, plus certain other deductibles. The plan would pay the remaining full
costs of care from $5,000 to $50,000.
(2) The second focus would be on the Family Health Insurance Program for
low-income families, which would replace a portion of the existing Federal-state
Medicaid program. The maximum eligibility ceiling would be $5,000 for a family
of four. Families of four with income below $3,000 would have their medical
costs completely assumed by the Federal Government. Families with incomes
between $3,000 and $5,000 would have to make individual contributions on a
graduated scale for items like deductibles.
(3) Premiums paid by the elderly for doctor-bill coverage under Medicare's
Part B would be financed through Social Security payroll taxes. This would force a
rise in the Social Security wage base to $9,800 a year. (It currently is $7,800.)
(4) The development of health maintenance programs — groups of doctors
furnishing prepaid health care with emphasis on service outside of the hospital —
would be given impetus. An estimated $45 million, an increase of $43 million,
will be sought for this. Both of the above programs must offer their beneficiaries
the option of receiving care from these health maintenance organizations. These
programs would be the key step to reorganizing the health care delivery system.
(5) The program also seeks to promote the formation of more family health
centers in the urban ghettos and to instigate a HEW commission to study the
rising cost of malpractice insurance.
(6) Increased grants to medical schools will be given, the size of which will be
determined by the number of graduating students. Also grants to students from
low-income families would be increased.
The overall plan calls for $80 million in additional appropriations in the fiscal
year beginning July 1.
National Health Care Act
The National Health Care Act proposes a program of health insurance which
would be jointly financed by private payments, tax deductions, and the Govern
ment. State-assigned risk pools would cover the poor. Services provided include
physicians' service and visits, nursing-home care, and some dental care. Cost to
the Federal Government for the first year is estimated to be $3.3 billion.
MEDICAL CARE AND SCARCITY
this pervasive and inescapable fact. Society
simply does not have the resources to take
all known steps to prevent or cure illness
and postpone death while continuing to
meet the claims of housing, food, and pur
suit of "the good life." Moreover, classifying
particular economic goods such as housing,
food, or medical care as "needs" does not
alter the fact that the world in which we
live is one of too few resources relative to
our desires.
"Needs" are not readily observable abso-
Health policymakers are faced with an
indomitable fact of life that has marked
man's trek through time — scarcity. There
are, and always have been, an unlimited
number of competing uses to which man
can devote his limited resources. Hence,
even the wealthiest of nations cannot have
all it wants of everything. Choices must be
made. The problem of obtaining more or
better medical care is painful testimony to
5
BUSINESS REVIEW
SEPTEMBER 1971
lutes, nor are they costless to satisfy. Con
sequently, the problem society faces is to
determine the level of medical "needs" or
wants it is willing to pay for. In other words,
what are we willing to give up for more or
better medical care? To say we are willing
to supply all that is "needed," while laud
able, is misleading. At some point, society
will find that additional resources are more
valuable in other areas, such as poverty or
education programs, than in medical care.
Further complicating the issue is how best
to use those resources that are devoted to
medical care. For example, more resources
placed in hospital capacity mean less avail
able for out-patient care, drugs, dental serv
ices, or training of doctors. Hence, some
difficult decisions or choices must be made
as to not only the amount of resources de
voted to medical care, but also how they
are to be employed. Scarcity is a tough and
unfeeling taskmaster.
Yet, the problem posed by scarcity is
effectively dealt with daily in most areas of
our economy. Why does it seem to reach
crisis proportion in the medical sector? An
important part of the answer can be found
in the crippling of the market system usu
ally employed to resolve scarcity difficulties.
The Crippled Hand. The U. S. economy
relies primarily on private incentives and
consumer wants expressed through compe
titive market forces to settle problems posed
by a world of too few resources. The under
lying notion behind this form of economic
organization is simply that individuals in
their role as consumers and producers, by
attempting to make themselves better off,
end up putting their privately owned re
sources to uses most highly valued by society
as a whole. That is, resources automatically
would be put to socially desirable uses and
in the appropriate amounts. This notion
works surprisingly well in a market-oriented
economy when markets are open to all
comers and are allowed to respond to com
petitive forces. All the information and in
centives needed to make the system work
are guided by the "invisible hand" of the
market.'
The medical care system, for the most
part, is shielded from this process, and
market forces are severely crippled. Despite
the fact that about 60 per cent of the funds
paid out for health and medical care are
private expenditures made in a market situa
tion, the market signals yielded are con
fused and often go unheeded. Little infor
mation is generated on the most economi
cally productive combination of medical
resources (doctors, nurses, and hospitals).
For example, since neither doctors nor hos
pitals openly compete on price, charges
vary for similar services. Among other things,
this lack of competition hides information
about the most efficient methods, hospitals,
and doctors.1
1 The process works this way. Competitive prices
are signals which direct the flow of resources to uses
most highly valued by society as a whole. And con
sumers play the dominant role in determining which
uses are most highly valued by bidding up the prices
of goods they prefer more of relative to those they
prefer less of. As a result, relative market prices re
flect the taste and desires, or values, consumers attach
to having additional units of each good. This informa
tion about society's tastes and desires is essential,
for it tells producers where to direct resources.
Profit-seeking producers are important cogs in the
workings of the system. Noticing a change in relative
market prices (or anticipating one), a sharp-eyed pro
ducer bids resources away from the lower valued uses
and directs them to the production of goods and
services for which consumers have expressed a desire
(or can be expected to desire). His incentive to do
this is an increase in wealth. But, as production ex
pands, a point will be reached where the additional
resources are going to cost the producer more than
they can add to his return. He will stop producing
goods which use these resources before that point is
reached, if he is interested in achieving the largest
return possible. This return will be kept to a mini
mum by competition (or the threat of it) from other
producers. Hence, market prices provide producers
with both the necessary information and incentive to
insure that resources flow to uses most highly valued
by society. And, as a consequence, any rearrangement
of society's output would leave it worse off, provid
ing that the current distribution of wealth is accept
able, competitive markets prevail, and that individuals
bear the consequences of their actions.
6
FEDERAL RESERVE BANK OF PHILADELPHIA
continues, in part because these programs
did nothing to improve the organization and
operation of the medical system. Moreover,
these national programs suffer from an un
derlying flaw which could easily lead to a
deterioration in the care they attempt to
provide.
Some Side Effects. The Medicare and
Medicaid programs were simply grafted on
to the existing medical care delivery system.
These programs did nothing to reorganize
or improve the efficiency of that system,
while at the same time, they expanded the
demands placed on it.2 As a result, many
observers have placed a good portion of the
blame for the recent rapid rise in medical
costs on the doorstep of the MedicareMedicaid programs.
People making use of these programs are
clearly benefitting. However, the fate of
others is less certain. To the extent that the
jump in medical prices is caused by Medi
care and Medicaid, people outside these
programs must pay more than they would
had there been no Government program.
These people may seek less or lower quality
medical care. In addition, in areas where
hospital beds are relatively scarce, a larger
proportion of hospital care goes to those
covered under Medicare than goes to the
rest of the population. Hence, the young
may receive less hospital care in these areas
than they would if there had been no such
programs.3 Nor have the increased expendi
Moreover, much of the incentive for effi
ciently combining these resources is weak
or nonexistent. Hospitals are rarely "forprofit" institutions, which means they may
lack the incentive to respond to a profitable
situation, such as demands by consumers in
a particular area for more hospital beds. In
addition, hospitals are rarely selected on the
basis of costs by a patient, since he is usu
ally hospitalized where his doctor is affili
ated. And last, an individual covered by
some form of third-party payment (private
health insurance or government program)
has little incentive to shop for price among
doctors and hospitals since the insurer is
paying the bill.
Treating the Poor. Further complicating
the problem of dealing with scarcity is the
issue of the poor. Even if the medical care
delivery system functioned as a competitive
market, a family's income would still be
crucial in determining the amount and qual
ity of care received. Since the rewards in a
free-enterprise system are unevenly distrib
uted among individuals, some people may
lack the funds to purchase the level of care
(either through insurance or from out-ofpocket expenditures) that society deems
they ought to have. And as medical costs
continue to soar (see "Footing the Medical
Care Bill" in this issue), this problem is ex
acerbated. Hence, some means of insuring
that the poorer members of society (or
those with large medical bills relative to
their incomes) receive this level of care is
required.
2 There is evidence that both the quality and quan
tity of hospital care demanded because of these
programs has increased. Since the inception of these
programs, there has been a doubling in the rate of
increase in real inputs per patient-day, which indi
cates people choose higher quality service when
hospital bills are paid for them. See J. P. Newhouse
and V. Taylor, "The Insurance Subsidy in Hospital
Insurance," Journal of Business (October, 1970), p. 453.
In addition, the hospital admission rate per 1,000
people covered under Medicare alone has risen 8.5
per cent over the past four years.
3 M. S. Feldstein, "Econometric Model of the Medi
cal System," Quarterly Journal of Economics (February,
THE FIRST ATTEMPT
The Federal Government's first large-scale
attempt to cope with the medical care di
lemma took the form of the Medicaid and
Medicare programs. Medicare and Medicaid
are aimed respectively at the old, whose
medical demands are large, and at lowincome members of society. Since 1966,
these two programs have injected billions of
dollars into the medical system each year.
Yet, the hue and cry about "inadequate" care
1971), p. 9.
7
SEPTEMBER 1971
BUSINESS REVIEW
service against the added cost. But since the
added cost is essentially zero or minimal
to them once they have joined the program,
people seek more or better quality medical
care than they would if each had to pay
for it out of his own pocket.
A simple analogy would be a luncheon in
which a group of people agree to split the
bill. Each person has an incentive to order
a more expensive lunch than the next fellow,
since everyone in the group will bear part
tures noticeably made access to care any
easier for those in ghetto and rural areas
where medical services are hard to come by.
The Split Decision. Perhaps even more
disturbing is the fact that these national pro
grams suffer from an underlying flaw. The
decision about how much care people want
or demand is separated from the decision
on the amount to be supplied or financed
through the programs.
Supply and demand decisions pose a
problem if they are split up because individ
uals behave differently when making choice
decisions through groups (governments) than
when making private decisions.4 For ex
ample, if a national health program or insur
ance scheme is financed through Govern
ment, as the Medicare-Medicaid programs
are, an individual citizen is involved in a
"group" choice on the amount of medical
services to finance through Government.
Higher levels of medical care then imply
higher taxes for individuals. The gains (more
or better medical care) are weighed against
the costs (higher taxes) by the individual
through his Congressional Representative
and a specific level of care is set for a
specific dollar amount in taxes. Medical care
on the supply side is in no sense "free."
But if the decision on the demand side
to use medical care is an individual one
where a good deal of care is offered "free"
(or at nominal charges) after joining the
program, then individuals would attempt to
obtain more or better quality medical care
than they indicated they were willing to pay
for through the group or Government deci
sion. This behavior is perfectly consistent.
Even under a Government program, the
amount or quality of medical care people
actually seek is a private decision or choice.
They weigh the added benefits from more
4 For the development and analysis of this problem
in B rita in 's N a tio n a l H ea lth S e rv ic e , see J. M.
Buchanan, "The Inconsistencies of the National Health
Service," Occasional Paper 7 (Institute of Economic
Affairs, Ltd., Great Britain, 1964), pp. 3-23 .
8
FEDERAL RESERVE BANK OF PHILADELPHIA
lar result may occur if hospital charges are
also directly controlled.
of the added cost. As a result, the total bill
is likely to be larger than if each had agreed
to pay for his own lunch separately.
It could be argued that a lower price or
cost of "needed" care will not induce an
individual to purchase more of it. It is cer
tainly true that for some types of medical
care, price will have little effect on the
amount people seek. It is doubtful that a
lower price would have much influence on
the number of broken limbs repaired or
slashed arteries stitched. But it may have a
considerable impact on whether the more
expensive hospitals or doctors are selected.
Thus, for medical care as a whole, price or
cost does have an impact on the amount
and quality sought. People want ("need")
more or better medical care when the price
to them is lower.
The outcome of splitting the supply and
demand decision is that the actual Govern
ment expenditures run far in excess of the
planned amounts. (In 1969, actual Federal
expenditures for Medicaid alone were 50
per cent greater than the estimated cost.)
At some point the group decisionmakers —
Congress — will try to limit the overruns,
since they imply even higher taxes. The first
attem pt to do so under the M ed icare Medicaid programs took the form of tighter
administrative controls. Now there is a pro
posal under consideration by Congress to
extend these controls to doctors' fees, limit
ing increases to the rate of increase in Social
Security benefits. The likely outcome of
such controls would be a breakdown in the
quality of service.5* Doctors may refuse to
treat patients covered under Government
programs or give less time to them. A simi
NEW DIRECTIONS
5 The British experience demonstrates this point. In
1965, over 70 per cent of Britain's family doctors
threatened to resign pending the outcome of nego
tiations with the Minister of Health. Hospitals were
crowded, and there were lengthy delays in obtaining
treatment, except in emergency cases. Moreover, the
number of new entrants to the medical profession
became fewer, while British doctors continued to
emigrate (Buchanan, op. c/tj.
9
The experience with Medicare and Med
icaid suggests that new medical or health
care proposals must prescribe something
more potent than dollar injections if effi
ciency and "adequate" care for all are to be
achieved. Two problems must be faced.
First, the financial mechanism or "insurance"
scheme designed to make medical care
available to the poor (or any other group)
must get around the problem of the split
decision. Second, some provision must be
made for insuring greater efficiency in the
operation of the medical care delivery sys
tem or market.
Financing Medical Care. One way to skirt
the problem of the split decision associated
with national health plans is to have Govern
ment make both the supply and demand
decision for a portion of medical care. Gov
ernment could choose the total amount it
wishes to finance (a supply decision) and
hand out "health vouchers" totaling to that
amount (a demand decision) to the poor.
There would be no cost overruns, hence, no
incentive to curtail or control services. The
size of the voucher, of course, could differ
over location, age, and income group. Addi
tional medical care (or insurance for addi
tional care) would then be a private choice
on both the demand and supply sides.
Moreover, there are a number of ways to
couple a voucher scheme with insurance
programs to induce people to seek out the
lower cost producers of medical care. One
method would be to set the voucher equal
to the cost of an "acceptable" benefits plan,
based on average hospital charges. Next,
allow the vouchers to be "cashed" only with
insurance companies that rank hospitals ac
cording to expense. Let the voucher holder
choose how expensive a hospital he will use
in case of illness. Those who select hospitals
classed above the average in charges would
have to pay something over and above their
SEPTEMBER 1971
BUSINESS REVIEW
tion of these two methods may serve us best.
One method of bringing the cutting edge
of competition to bear more heavily on the
operation and organization of the medical
care system is to adopt measures which
permit and encourage "for-profit" institu
tions or corporations. While such measures
may not be workable under all circum
stances because of the nature of the product
and its relationship to human life, maximal
extension of market forces would further
the goal of a more efficient health care
delivery system.
The seeds for bringing medicine to the
marketplace are already planted — prepaid
group practice plans.7* Prepaid group plans
differ from ordinary health insurance in that
they provide the hospitals, doctors, and lab
oratory services for a fixed yearly fee (which
is paid monthly) rather than simply paying
the bills when certain types of sickness or
injury occurs. More importantly, these plans
have a vested interest in keeping you
healthy rather than just paying your bills.
The healthier a member is, the less he will
use the facilities, hence, the smaller the cost
to the organization.
The organization takes on the responsi
bility of insuring medical care for members
and suffers the consequences of failing to
keep members healthy. Doctors are paid
salaries and are provided with monetary in
centives to use the facilities and treatment
techniques efficiently. If revenues are more
than costs at year's end, they can receive a
bonus. Moreover, they spend all their time
practicing medicine rather than engaging in
billing, worrying about patient's financial
status, gearing treatment to fit the type of
insurance coverage he has, and hiring and
supervising office personnel. There is no
incentive for needless surgery or medica
tion, since doctors are paid salaries. More
over, such organizations have built-in incen
voucher for the insurance. However, people
choosing hospitals classed below average in
charges could apply the unused portion of
their voucher to dental care or optician
services. (A cash refund might provide even
greater incentive to seek the lower cost
facilities.) Unlike current medical insurance
programs, either public or private, this plan
provides some built-in incentive to seek the
lower cost hospitals.6 "Deductibles" and
"coinsurance" features, which tend to make
people cost-conscious when purchasing
medical care, can also be woven into a
voucher or subsidy plan.
While this type of voucher or subsidy
system would help those covered, it is not
likely to lead to any basic changes in the
organization of the medical care delivery
system. Yet it is the organization and opera
tion of the medical care system that play an
important part in determining how much of
a subsidy or voucher is required to achieve
a particular level of medical care.
Towards a More Competitive System.
There are several ways to reorganize or co
ordinate medical care delivery in order to
serve the consumer better and keep cost
under control. One method would entail a
streamlining of the present system by medi
cal planners. (For a discussion of one such
systemized approach, see "Three-Tier Ther
apy" by Cynthia Elinoff in this issue.) An
alternative approach would rely on increas
ing competitive forces to tailor medical care
delivery. It may be the case that a combina-
6
A number of other variations on this scheme can
be employed. For example, the voucher could be
used just for catastrophic illness or injury insurance
which would come into effect after some amount,
say 10 per cent of a family's income, is spent for
medical care. For development of these plans and
others, see J. P. Newhouse and V. Taylor, “ How Shall
We Pay for Hospital Care?" Public Interest (Spring,
1971), pp. 78-92; M. S. Feldstein, “ A New Approach
to National Health Insurance," Public Interest (Spring,
1971), pp. 93-105; R. Eilers, "Postpayment Medical
7 The Kaiser Foundation Plan in California and the
Expense Coverage: A Proposed Salvation for Insured
Health Insurance Plan of Greater New York are the
and Insurer," Medical Care (May-June, 1969), pp.
two most well-known prepaid group practices.
191-208.
10
FEDERAL RESERVE BANK OF PHILADELPHIA
tives to uncover and fire incompetent doc
tors, since they can serve only to raise
costs.8
Prepaid group plans are just one form of
medical service organization that could de
velop in a more competitive atmosphere.
It takes little imagination to visualize the
many forms this model for reform might
take, if given the chance. Large corpora
tions, with stockholders to undertake the
risk, might develop in the medical care field.
These organizations could easily extend the
program on a nationwide scale, providing
insurance, doctors, hospitals, and laboratory
service for its members any place in the
nation or world.
The competition between several of these
“ medical corporations" in addition to that
from doctors in private practice and inde
pendent hospitals would keep continual
downward pressure on costs and lead to
attempts to extend services to more people.
One method of obtaining more customers
is advertising. And advertising can benefit
the consumers since it often is an important
source of information for comparing price
and quality— information that is sadly lack
ing in today's medical system.
The advantage of a competitive market
place is not that a particular type or form
of organization will develop but, rather,
that it generates the information and incen
tive for altering organizations to meet the
changing demands of society. The forces of
a competitive marketplace are wedded to
flexibility and variety, rather than to a par
ticular structure.
Moreover, there is nothing inherently im
mutable about the existing organization of
the medical system. Other “ necessities" of
life, such as food, clothing, and shelter, are
provided by profit-motivated enterprise in
a competitive environment. Finally, much of
the impetus for a national health scheme
comes from Government's desire to finance
medical expenditures for those too poor to
do so. Achievement of this goal through an
appropriate national insurance or financing
program would remove a major objection to
a competitive marketplace for medical care.
But if a more competitive medical system
is to thrive, many of the laws and practices
which thwart its development must be elim
inated. There are currently 22 states which
prohibit or greatly limit the role of prepay
ment group practice organizations. And at
least one state legislature is considering a
proposal to outlaw proprietary or “ forprofit" hospitals. Moreover, restrictive li
censing practices can prevent doctors from
delegating many tasks to competent assist
ants. This delegation would enable doctors
to organize and deliver medical care more
efficiently. In addition, current licensing
procedures give professional medical socie
ties the power to discipline doctors who
introduce more competitive methods, such
as advertising and price cutting, into their
practices and to control entry into the pro
fession. Some believe tight control over
entry to the profession is responsible for
the “ doctor shortage" and is the most im
portant area for reform.9 Eliminating these
9 In concern over the quality of medical care, almost
every state government requires prospective practi
tioners to obtain a license. State medical examining
boards set the requirements for a license. These re
quirements are practically the same as those of the
American Medical Association, which through its
affiliated local medical societies plays a large role in
the selection of the state examining boards. In effect,
government has given the medical profession power
to set standards and police the actions of its members.
This power also extends to medical school training
standards, since in most states a condition for obtain
ing a license is graduation from an "approved" (by
the American Medical Association) medical school.
Moreover, actions by doctors such as advertising,
openly competing on prices, and organizing prepay
ment group practice plans can be, and have been,
8
For a comprehensive discussion of prepaid group restricted in the name of quality control. While this
practice plans, see E. K. Faltermayer, "Better Care at
power might be used to raise the quality of doctors,
Less Cost Without Miracles," Fortune (January, 1970),
it can also be employed as a device to raise or pro
p. 80f.
tect incomes of existing practitioners by restricting
11
SEPTEMBER 1971
BUSINESS REVIEW
portant over the long haul would be the
resources released for preventing or reduc
ing the incidences of those very ills that
confound doctors and doctoring and ac
count for so much sickness and death in
America— heart and kidney disease, alco
hol and drug abuse, and cancer.
With all the demands on the consumer's
dollar for better housing, education, nutri
tion, and safety programs (all of which may
have substantial health benefits), policy
makers must take a long, hard look at alter
native ways of achieving a healthier society
if they are interested in getting the most
"health" per dollar spent.
legal obstacles to competition in the medi
cal industry would be a step in the direction
of increased efficiency in the organization
and operation of the system. An efficient
system would mean more or better care
without increased expenditures.
MORE "HEALTH" PER DOLLAR
Improving the efficiency of the medical
care system is not sought for its own sake.
The more efficiently this industry is organ
ized, the better it would serve the sick.
Greater efficiency also implies more re
sources available for helping the poor ob
tain medical care. Perhaps even more im
entry to the profession and policing actions of re
calcitrant members.
These actions, to the extent that they are employed,
tend to reduce the effectiveness of market forces in
allocating medical resources. Nor is it clear that they
insure high-quality care. Licensure only indicates a
man's competence at the time he takes the examina
tion and tells little about his competence a quarter
century later. Moreover, it may limit the number of
practitioners available, which means some people
may do without medical care, take home remedies,
or seek advice of untrained people. Any relevant
measure of medical care quality ought to include the
impact of any reduction in the amount of care for
the society as a whole. If licensure does improve the
quality of medical care, it does so only for those who
have access to the care.
One way around the problem posed by licensure is
certification. Universities certify a level of quality
when they grant doctorates, masters, and bachelors
degrees to physicists, chemists, engineers, and others in
professional and scientific groups. And some members
of these groups do deal with life-and-death situations.
Astronauts trust their lives with the engineers and
physicists that send them millions of miles into space.
Other unlicensed scientific personnel insure the food
and water we consume will not kill us. The threat of
law suits and competitive pressure from rival firms
tends to eliminate potentially dangerous incompetents
from responsible positions. For discussions of how the
American Medical Association exerts its control and
monopoly returns in medicine, see M. Friedman,
Capitalism and Freedom (Chicago: University of Chi
cago Press, 1963), pp. 149-160; M. Friedman and S.
Kuznets, Income from Independent Professional Prac
tice (New York: National Bureau of Economic Re
search, 1945); R. Kessel, "AMA and the Supply of
Physicians," Law and Contemporary Problems (Spring,
1970), pp. 267-283. Elton Rayack, Professional Power
and American Medicine (New York: World Publishing
Company, 1967).
■
12
FEDERAL RESERVE BANK OF PHILADELPHIA
providing
essential
medical care
is no easy task
13
SEPTEMBER 1971
BUSINESS REVIEW
Footing the Medical
Care Bill
W H I L E A L L M E D IC A L P R I C E S H A V E R IS E N . . .
Index (1957-59=100)
Although inflation has become common
place for consumers in recent years, the rise
in the cost of medical care has far outpaced
the hike in cost of most other goods. For
instance, over the past decade, medical
costs have increased nearly twice as fast
as the prices of two of life's other necessi
ties— food and housing.
T H E C O S T O F A D A Y IN T H E H O S P I T A L H A S
ZO O M ED .
Index (1957-59=100)
Hospital charges have tripled since I960,
while physicians' fees have jumped nearly
40 percent. The most stable component of
medical costs has been drugs and prescrip
tions.
14
FEDERAL RESERVE BANK OF PHILADELPHIA
G O V ERN M EN T H A S S H O U LD E R E D M ORE O F
T H E M E D IC A L C A R E C O S T S . . .
Per Cent of Total Expenditures
Although private and public payments
have all increased in absolute terms, pay
ments by Federal and State Governments
have taken a tremendous jump. Since the
introduction of Medicare and Medicaid in
fiscal 1966, public payments pushed their
share of total payments to an all-time high
of 35 per cent. Direct payments from con
sumers dropped from 52 per cent to under
40 per cent of total payments in this same
period, while the share paid by private in
surance benefits registered little change.
Source: U.S. Department of Health, Education, and Welfare, Social Security
Administration.
C A U S IN G T H E T A X P A Y E R S B U R D E N F O R H E A L T H
C A R E T O IN C R E A S E 2 8 0 P E R C E N T .
Because the Federal Government has ac
cepted much of the responsibility for financ
ing these large increases in medical costs,
ultimately, it is the taxpayer who pays the
bill. Since Government expenditures are
financed principally by tax dollars, any in
crease in these expenditures means addi
tional taxes or a sacrifice of other Govern
ment programs. Hence, while direct per
sonal outlays in the form of out-of-pocket ^
expenses and insurance premiums have in
creased 55 per cent and 117 per cent re
spectively, indirect payments by individuals
through taxes have leaped 280 per cent
since 1960. It is apparent, therefore, that the
individual still pays dearly for the costs of
health care. And it is primarily for this
reason the nation's health care system has
been subject to increasing scrutiny and
criticism.
■
15
Per Cent
Federal
Revenues
Devoted
To
Health Care
Private
Insurance
Premiums
Private
Direct
Expenditures
'Percentage increases in expenditures for health care from fiscal 1960 to
1969, current dollars. Yearly figures for private insurance premiums adjusted
to fiscal years.
Source: Health Insurance Association of America: Department of Health,
Education, and Welfare, Social Security Adminstration.
SEPTEMBER 1971
BUSINESS REVIEW
Three-Tier Therapy
by Cynthia A. Elinoff
characteristic. If such a Government pro
gram were implemented, it is likely that
lower or middle income families would seek
— and seek more often'— the types of
medical care they avoided before because
of the prohibitive cost.
Whether such government programs would
result in real and significant increases in
health care is not yet clear. To register real
gains, manpower and facilities must become
more efficient and adapt to the new pres
sures facing them. This expanding demand
for health care, coupled with increasing
private demand, is already straining the
aggregate capacity of hospitals and medical
personnel, and exposing imbalances in the1
Medicare and Medicaid, the first attempts
by the Government to aid the old and the
needy to achieve better medical care, were
manifestations of an attitude among many
Americans that some minimum level of
health care is a right rather than a privilege.
As this attitude spreads, and the cost of
medical care continues its upward climb, a
large portion of the public is beginning to
expect the Government to articulate some
program which would make basic medical
services available to all people, regardless
of income level, age, location, or any other
1 Many Government programs would be prepaid
plans, whose introduction would also amplify demand
for medical services. When people prepay a set an
nual fee for all medical services, they tend to make
greater use of medical services than if they paid for
each service individually.
16
FEDERAL RESERVE BANK OF PHILADELPHIA
rough measure of the provision of hospital
facilities in an area is the ratio of popula
tion to the number of hospital beds. Gener
ally, the District's population-to-bed ratio is
on par with the national average — around
254 persons per bed.
Looking Deeper. However, there are sub
stantial differences among parts of the Dis
trict. While the District's endowment of
hospitals is in line with national averages,
several areas — La n ca ste r, Reading,
Allentown-Bethlehem-Easton, and the south
eastern rural area (including counties in New
Jersey and Delaware) — have a lean supply
of hospitals (see Map 1). Even more striking,
there are actually six counties with no hos
pitals at all.4 People in these counties rely
solely upon the neighboring areas for their
hospital care.
Why this lack of hospital facilities in cer
tain areas? Population and income provide
the keys. The absence of sufficient demand
in a sparsely populated county makes the
construction of a hospital economically
infeasible. Likewise, poor regions cannot
shoulder the cost of maintaining a hospital.5
Five of the six counties without any hospital
have per capita incomes in the lowest third
of the District. The other county, Cameron,
is a relatively wealthy area, but has the
second fewest number of people of any
county in the District.
Of course, there are alternatives to hos
pital care; the primary option is a wellequipped doctor's office. But in the rural
areas, the availability of doctors seems to be
even more of a problem than the supply
of hospital beds. As we can see in Map 2,
location and the tools of the medical care
industry.2
Hospitals — the centers of community
health services — are feeling a particular
strain upon existing facilities and conse
quently are under great pressure to expand
and smooth the distribution of their serv
ices. If this burgeoning demand is to be
met head on, medical planners urge move
ment toward a systemized approach in
which hospitals are made accessible to the
population and have the facilities to provide
adequate service efficiently.
The Third District is not exempt from
these nationwide pressures. An examination
of the problems of the distribution of health
facilities in this region — the hospitals and
the services they provide — points up some
benefits that might be gained from reorgan
izing health care delivery.
HOW AVAILABLE IS HOSPITAL CARE?
At first glance, the Third District appears
to be well-endowed with hospitals. The re
gion contains just over 300 hospitals3, twothirds of which are general hospitals offer
ing a wide scope of services. Overall, the
number of medical facilities in both urban
and rural regions in the District corresponds
to typical levels throughout the nation. One
2 The medical personnel problem is severe in many
areas. To help meet the anticipated increase in de
mand, as well as to fill the gaps which now exist,
paramedics are being trained to take over some of
the more routine tasks of the physician, leaving him
to the more technical work. Salaries of personnel are
also being hiked to induce new people to enter the
health professions. If demand continues to increase
under the present system of health care delivery, then
it will be necessary to increase the number of new
physicians. The medical schools today are straining
with the number of students they now have. In the
future, expanded enrollment in medical schools as
well as additional facilities for training the future
physician may well be a major consideration.
3 The only data available was for hospitals registered
by the American Hospital Association, and, therefore,
this study confined itself to those AHA-registered
hospitals.
4 Cameron, Juniata, Perry, Pike, Snyder, and Sullivan
counties do not have any general hospitals.
5 This situation raises two difficult questions regard
ing health care. If normal economic forces do not
provide hospitals in a particular area, should the peo
ple in that area be denied the right to adequate
hospital facilities? A second question, more medical
in nature is, does the patient, in fact, need to be
situated near a hospital?
17
SEPTEMBER 1971
BUSINESS REVIEW
M AP 1
A V A IL A B IL IT Y O F H O S P IT A L B E D S V A R IE S
T H R O U G H O U T T H E T H IR D D IS T R IC T ...
NORTHEAST RURAL AREA
NORTHWEST RURAL AREA
SCRANTOI
^A LLEN TO W N
B ETH LEH EM
READING
/ S0U TH W EST .^ lA R R IS B U R G
F RU RAL A R E A 'V '
4^ .
iN C A S T E R ^ PHILADELPHIA
POPULATION-TO-HOSPITAL BED RATIO
J
BELOW AVERAGE: Less Than 230 People Per Bed
AVERAGE: 230-260 People Per Bed.
ABOVE AVERAGE: More Than 260 People Per Bed
M AP 2
B U T A V A I L A B I L IT Y O F D O C T O R S IS M O R E U N E V E N .
NORTHEAST RURAL AREA
NORTHWEST RURAL AREA
[SCRANTON
XENTOWN
I leh em
roN
READING
/ SOUTHWEST \
F RURAL AREA
£
V
HARRISBURG
1NCASTER1
POPULATION-TO-DOCTOR RATIO
~j BELOW AVERAGE: Less Than 700 People Per Doctor,
fl
AVERAGE: 700-900 People Per Doctor.
B
ABOVE AVERAGE: More Than 900 People Per Doctor.
18
FEDERAL RESERVE BANK OF PHILADELPHIA
the ratio of population to doctor for every
rural area is sharply above the national
average. Moreover, counties with no hos
pitals are among those with the fewest doc
tors per capita. Cameron County, for ex
ample, had only two physicians for 7,000
people in 1969, as compared to a national
average of 814 people per physician.6 A sec
ond alternative is the outpatient clinic. This
type of facility, as it now exists elsewhere,
has the equipment to provide basic and
preventative medical care. However, there
appear to be no outpatient clinics existing
independently of general hospitals in the
District's rural areas.
Many in the medical profession consider
neither the doctor's office nor an outpatient
clinic, in itself, a good substitute for a gen
eral hospital. Therefore, even an abundance
of doctors' offices and clinics would not ful
fill the needs of rural areas. General hospitals
provide a collection of services for which
traveling great distances is thought to be
undesirable. According to the National
Commission of Community Health, "Health
services, operated to meet the health needs
of every individual, should be located with
in the environment of the individual's home
community." Health services in several rural
areas in the District do not appear to meet
this criteria. On the whole, they lack hos
pitals, physicians, Or any reasonable substi
tute.
Inside the Hospitals. Further evidence of
the heterogeneous distribution of health
care in the District lies in the kinds of serv
ice hospitals provide. The mere existence
of a hospital does not insure adequate
health care. All hospitals we have discussed
at least have an operating room, a clinical
laboratory, diagnostic X-ray service, and a
pharmacy. While these facilities might have
seemed extensive in another age, today's
medical problems and procedures often call
for a wider range of facilities.
An overview of some important addi
tional facilities is shown in the Table. These
facilities are broken down into three cate
gories: basic services, clinical services, and
specialized services. A further breakdown
of some of these facilities by urban and
rural distribution can be seen in the Chart.
Basic services are those which are gen
erally associated with hospitals, and are
used in servicing a large proportion of pa
tients. These should be made readily avail
able to the surrounding community, but are
not required in order to become a regis
tered hospital. The District is well-supplied
with these facilities (see Table). Many of
these services are presently found in at least
70 per cent of the District's general hospiH O S P I T A L S IN M O S T A R E A S O F F E R
B A S IC S E R V IC E S , B U T S P E C IA L IZ E D
F A C I L I T I E S C E N T E R IN U R B A N L O C A L E S .
6 In general, District averages do not compare fav
orably with the national average: urban areas of the
Third District average 902 people per doctor; the rural
average is 1221 to 1.
19
Per Cent
Per Cent of Urban Hospitals with Facility
Per Cent of Rural Hospitals with Facility
SEPTEMBER 1971
BUSINESS REVIEW
TABLE
DISTRIBUTION OF FA C ILITIES IS
FAR FROM UNIFORM IN THE
THIRD DISTRICT
I. BASIC SER V ICES
General Hospitals
With Facility*
Postoperative Recovery Room ..........................................
91.8%
Emergency Department .....................................................
89.7
Blood Bank ........................................................................
89.2
Physical Therapy Department ..........................................
79.5
Full-time Registered Pharmacist .....................................
78.5
Hospital Auxiliary .............................................................
78.5
Histopathology Laboratory ..............................................
72.8
Premature Nursery ...........................................................
70.8
Inhalation Therapy Departm ent.......................................
63.6
63.0
Intensive Care Unit ................................
Electroencephalography .....................................................
50.2
Psychiatric Emergency Service .......................................
36.4
Part-time Registered Ph arm acist.....................................
22.0
Rehabilitation Services, Inpatient ...................................
15.4
II. CLIN ICA L SERV ICE
Organized Outpatient Departm ent...................................
Dental Services ..................................................................
Social Work Department ..................................................
Occupational Therapy Department .................................
Family Planning Service ..................................................
Psychiatric Outpatient Departm ent.................................
Rehabilitation Services, Outpatient..........................
62.6
54.9
49.2
18.5
14.3
13.8
13.3
III. SPECIALTY SERV ICE
X-ray Therapy ............. „ ....................................................
Radioisotope Facility .........................................................
Radium Therapy ...............................................................
Intensive Cardiac Care .....................................................
Cobalt Therapy ..................................................................
Renal Dialysis, Inpatient ................................................
Renal Dialysis, Outpatient ..............................................
Self Care Unit ....................................................................
Open Heart Surgery Facility ............................................
Extended Care U n it ...........................................................
Organ Bank ........................................................................
65.1
60.0
53.8
48.7
17.9
17.4
12.8
9.7
7.7
6.7
2.0
*There are 215 General Hospitals registered by the American Hospital Asso
ciation in the Third District; 195 General Hospitals reported facilities.
Source: Guide Issue, Hospitals (August, 1970).
Clinical services are those which need
not be located within a hospital, but often
are. Outpatient Clinic and Dental Services
are found in over half the District's hospi
tals. The distribution of the rest of the
clinical services is quite limited (see Table).
tals, but some facilities, such as Rehabilita
tive Services and Psychiatric Emergency
Rooms, are found in less than 40 per cent
of the hospitals. As shown in the Chart,
there appears to be little difference be
tween the urban and rural areas.
20
FEDERAL RESERVE BANK OF PHILADELPHIA
In contrast to urban areas, rural areas lack
clinical services (see Chart). For example,
one-third of rural hospitals have Social
Work Departments, and only 5 per cent have
Family Planning Services.
Specialty services are those facilities which
require both extremely expensive equipment
as well as highly trained personnel to per
form the service. Provision of these facilities
follows no uniform pattern. Some, such as
Radium Therapy and Radioisotope Facilities,
are found in many hospitals in the District,
while others, such as Open Heart Surgery
and Organ Banks, are found in a small
number of hospitals.
As might be expected, most of these
specialty facilities are located in urban areas
(see Chart). While over one-quarter of urban
area hospitals have Cobalt Therapy, only
8 per cent of rural area hospitals have this
service. Further, a majority of these specialty
services are found in the Philadelphia re
gion. For instance, this area has most of the
Organ Bank facilities. One of the major
reasons why the specialty services are not
found all over the District is that a dense
population may be necessary if a specialized
facility is to be fully utilized. As a general
rule, the more specialized the facility, the
larger the population it must draw from if
it is to be economically efficient.
One Further Consideration. An inventory
of hospital facilities in the District does not
fully define the health situation. A hospital
may indeed have the facilities, but its equip
ment may be faulty, its staff may not be
able to cope with the patient load, and so
on. A facility only provides a service to a
hospital and the community when it can
efficiently be put into use.
While the Third District has many facili
ties, the level of availability of health care
varies dramatically throughout the District
and among individual hospitals. If such gaps
between demand and supply increase, most
medical savants see the problem of health
care delivery reaching crisis proportions.
This growing gap cannot be plugged merely
by building more hospitals or randomly in
stalling more facilities. What is needed, if
equal access to medical services is to be
provided, is a major restructuring of the
health care delivery system.
21
SEPTEMBER 1971
BUSINESS REVIEW
BLUEPRINT FOR CHANGE
One proposal capturing the attention of
more and more physicians and medical
planners is creation of a three-tier system
of health care delivery — one consisting of
neighborhood clinics, general hospitals, and
specialty centers. One of the virtues of such
a plan is that it creates a rational definition
of the roles of each of the facilities.7 (For an
7 E. L. Crosby, “ Hospitals as the Center of the
Health Care Universe," Hospitals (January 1, 1970), pp.
52-56. A. M. Haynes, "Unifying Health Care," Hospi
tals (March 16, 1970), pp. 67-70. P. Rogatz, "The Health
Care System," Hospitals (April 16, 1970), pp. 45-50.
22
expanded description of the roles of each
level, see box.)
The neighborhood clinic would provide
the most basic level of medical care in the
reorganization. An essential feature at this
primary level would be its ability to meet
basic health needs of the people of the
community conveniently and efficiently. The
beginnings of this level can be found in the
few neighborhood clinics that are opening
in Philadelphia, primarily in urban lowincome areas. General hospitals are now
carrying much of this burden in outpatient
clinics. In the future, the general hospital
could maintain its outpatient clinic; how
ever, it would serve only the immediate
neighborhood.
These clinics also would help alleviate
difficulties of rural areas since clinics can
serve a small number of people efficiently.
Neighborhood clinics could provide the
preventative and basic health services for
the people in the rural areas. However, such
clinics cannot substitute for a general hos
pital. If the rural areas are to have a
comprehensive health care delivery system,
government at some level may have to
subsidize such facilities.
As the center of medical resources upon
which all health facilities, services, and per
sonnel focus, the hospital is the single most
important element upon which a new
delivery system might be based. The diag
nostic, general medical, and surgical pro
cedures would be performed at the general
hospitals that now exist. Hospitals in most
areas of the District are able to provide a
firm core for this second level of the pro
posed system. Some functions now per
formed at general hospitals would be shifted
to another, more efficient level. For example,
Family Planning programs would be moved
to the neighborhood clinic, while functions
such as Cobalt Therapy would be shifted to
a third, more specialized area. Once these
changes were made, the general hospitals
would be in a better position to improve
quality and efficiency of their service.
FEDERAL RESERVE BANK OF PHILADELPHIA
PUTTING SYSTEM INTO HEALTH CARE DELIVERY
The reorganization of the health care sys
tem, many experts would agree, requires
three levels of service. Such a plan would
necessitate the cooperation of hospitals and
medical groups.
sonnel a general hospital typically would
maintain. Experts point out that general hos
pitals should not perform those services
which could be more efficiently handled
elsewhere. They should not be overbur
dened with outpatient work, nor should
they attempt to support underutilized spe
cialty facilities.
I. A major dispersion of outpatient (ambu
latory) service in the form of community
health centers would deliver the basic and
preventative level of health care. The con
venience of these health centers would help
to encourage routine health care, such as
physical examinations and vaccinations.
Proximity to the community is, therefore, a
major feature of this phase.
Unlike more sophisticated health care
facilities, these centers would not require
elaborate equipment and could make greater
use of the paramedical profession. Because
these facilities can be provided in small
units at low cost, such centers could be
'storefront' clinics as recommended by the
American Medical Association.
III. The most sophisticated, highly special
ized medical services require expensive but
infrequently used equipment and personnel.
Since most of these services are not needed
in emergencies, geographic proximity is not
an important consideration.
Experts recommend these types of facili
ties be regionalized, perhaps in a large
medical center or in teaching hospitals in
order to achieve peak efficiency and to
avoid unnecessary duplication. Presently,
some specialty services are conducted in
such a manner, while many are not. Psychi
atric hospitals are good examples of special
ized health centers which are already func
tioning. On the other hand, some services,
such as Cardiac Care or Cancer Therapy,
are presently provided in an uncoordinated
manner at both specialty centers and gen
eral hospitals.
The basis of the proposals to consolidate
the facilities and personnel into regional
units is the efficiency of specialization. These
centers can concentrate their efforts on what
they do best — thus avoiding inefficiency
resulting from underutilization and duplica
tion.
II. The general hospital would provide in
patient facilities: laboratory, medical, and
surgical diagnosis, as well as most medical
and surgical procedures. Because of the
type of service the general hospital pro
vides, accessibility is an important factor.
Most emergencies, maternity care, and ther
apy would be handled here.
The continuous demand for services pro
vided at this level would compensate for
the expensive equipment and trained per
23
BUSINESS REVIEW
SEPTEMBER 1971
low-income urban areas and rural areas so
that they can receive the health care they
want so badly.
As the costs of medical services skyrocket
and increasing efforts are made by the Gov
ernment to provide high-quality medical
care to all, people are quickly beginning to
realize the benefit of an effective, wellorganized health care delivery system. The
beginnings of such a coordinated system
already exist in the form of neighborhood
clinics, general hospitals, and large medical
centers. Although the foundation of this
health care delivery system can be found
in the District, a critical period still lies
ahead. If we are to solve the health care
delivery problem, we must build a strong
program upon this foundation.
The changes will be slow in developing,
since human adjustments will have to be
made. Both doctor and patient will have to
accept the changes inherent in implement
ing a new system of health care delivery.
Attitudes towards the use of hospitals and
clinics must be altered as more effective
methods for health care delivery become
apparent. If these problems are kept in
mind, the three-tier proposal stands a good
chance of helping all people obtain at least
a minimum level of health care.
■
The specialty services would be found at
the third level, where they would be most
efficiently provided by consolidating ex
tremely expensive equipment and highly
trained personnel. The Third District appears
to be well-supplied with the specialty facili
ties; therefore, future efforts might well be
directed towards a reorganization of what
we now have, rather than widespread con
struction of new facilities. The District has
several large medical centers and six med
ical schools which could become the basis
of such specialty centers.
BUILDING ON WHAT WE HAVE
Efficient facility provision and utilization
requires a coordinated effort in which the
forces and interests of hospitals in the Third
District are merged. Efforts of hospital ad
ministrators would be coordinated, focusing
on facilities needed by the community,
rather than concentrating solely on the
problems of their own hospitals. There are
several methods of achieving this end —
bringing to bear competitive forces on the
health care delivery system, implementation
of public programs, or some combination of
the two, for example. Whatever route is
chosen, the three-tier system of services
might better channel resources towards the
24
FEDERAL RESERVE BANK OF PHILADELPHIA
The Fed in Print
Business Review Topics,
Second Quarter 1971,
Selected by Doris Zimmermann
Articles appearing in the Federal Reserve
Bulletin and in the business reviews of the
Federal Reserve banks during the second
quarter of 1971 are included in this com
pilation. To receive copies of the Federal Re
serve Bulletin, mail sixty cents for each to
the Federal Reserve Board at the Washington
address on page 29. You may send for busi
ness reviews of the Federal Reserve banks,
free of charge, by writing directly to the
issuing banks, whose addresses also appear
on page 29.
AGRIBUSINESS
Farm firm growth: Transition to an
industrialized agriculture? —
Kansas City May 71 p 3
AGRICULTURE
AGRICULTURAL LETTER available —
Chic June 71 p 16
BALANCE OF PAYMENTS
Summary of U.S. balance of payments:
1970 — St. Louis April 71 p 28
Accounting for the balance of payments —
Bost May 71 p 3
BANK ACCOUNTING
Average functional cost and revenue for
banks in three size categories
1966-1969 — Cleve April 71 p 3
BANK EARNINGS
Western banks' income — San Fran
April 71 p 69
OPERATING RATIOS available — Phila
May 71 p 8
Member bank income, 1970 — F R Bull
June 71 p 445
BANK HOLDING COMPANIES
1970 bank holding company amendments:
What is closely related to banking? —
Atlanta June 71 p 98
Orders affecting, June 22,1971 — F R Bull
July 71 p 627
25
SEPTEMBER 1971
BUSINESS REVIEW
BURNS, ARTHUR F. (continued)
Two key issues of monetary policy May
28, 1971 — F R Bull June 71 p 452
Statement to Congress June 16, 1971
(govt, loans to industry) — F R Bull
June 71 p 491
Statement before Foreign Economic
Policy Subcommittee June 30,1971 —
F R Bull July 71 p 592
BUSINESS FORECASTS AND REVIEWS
Forecasting and policymaking: Some
lessons from experience (Eastburn) —
Phila April 71 p 3
Economic review of 1970: The Fifth
District— Rich April 71 p 9
Financial developments, Qi 1971 —
F R Bull July 71 p 592
How well do economists forecast? —
Phila May 71 p 9
CAPACITY
Capacity utilization indexes — Rich
May 71 p 6
CAPITAL EXPENDITURES
Capital spending in major metropolitan
areas in the Fourth District — Cleve
June 71 p 3
CENTRAL BANKS
TOWARD A WORLD CENTRAL BANK by
Wm. McC. Martin available — N.Y.
April 71 p 79
Commentary on central bank activities —
Chic April 71 p 6
Social priorities and the market allocation
of credit — St. Louis May 71 p 8
CONSTRUCTION INDUSTRY
Calibrating the building trades —
San Fran June 71 p 101
Housing leads construction rise — Chic
May 71 p 2
CONSUMER EXPENDITURES
Consumer income spending and saving,
1960-1970 — Cleve June 71 p 10
CORPORATE FINANCE
Liquidity patterns in corporate financing —
Rich May 71 p 2
CREDIT BUREAUS
Fair Credit Reporting Act 1971: Questions
and answers — F R Bull June 71 p 547
BANK HOLDING COMPANY ACT 1956
Antitrust and the new Bank Holding
Company Act: Part III — Rich
April 71 p 3
The amended Bank Holding Company
Act — Kansas City May 71 p 11
BANK LIQUIDITY
A straightforward concept but hard to
measure — Dallas May 71 p 1
BANK LOANS — BUSINESS
Bank rates on business loans, revised
series — F R Bull June 71 p 468
BANK MERGERS
A decade of Sixth District bank merger
activity — Atlanta April 71 p 62
BANK PORTFOLIOS
Adjustment and disequilibrium costs and
the estimated Brainard-Tobin
model — F R Bull July 71 p 577
BANK RESERVES
Reserve adjustments — some empirical
findings — Kansas City June 71 p 12
BANKING — FOREIGN BRANCHES
Economic events force changes on several
fronts — Dallas June 71 p 1
BANKING STRUCTURE
Market for bank services: Changes in
Texas— Dallas April 71 p 1
BRIMMER, ANDREW F.
Statement to Congress May 19,1971
(foreign credit) — F R Bull June 71
p 486
Statement to Congress June 16, 1971
(VFCR) — F R Bull June 71 p 494
BUDGET
The 1972 Federal budget and economic
activity — Cleve May 71 p 18
The 1972 fiscal year budget: Another
year of moderate stimulation — Bost
March 71 p 22
BURNS, ARTHUR F.
Statement to Congress April 26,1971
(interlocking directorates) — F R Bull
May 71 p 386
Statement to Congress May 19, 1971
(balance of payments) — F R Bull
June 71 p 478
26
FEDERAL RESERVE BANK OF PHILADELPHIA
FOOD STAMP PLAN
Food programs — increased emphasis —
Chic June 71 p 2
FOREIGN EXCHANGE
DEFENDING THE DOLLAR available from
Bank and Public Services Dept. —
Phila April 71 p 26
Anatomy of an international monetary
crisis — Chic May 71 p 12
GEORGIA
The Georgia economy: Building
momentum for a quicker pace? —
Atlanta June 71 p 112
GERMANY, WEST — CREDIT CONTROL
Controlling money in an open economy:
The German case — St. Louis
April 71 p 10
INCOME, GUARANTEED
Income maintenance programs: Spending
the benefits — Phila April 71 p 15
INCOME, PERSONAL
Personal income in Texas accelerates to
rate faster than the nation's — Dallas
May 71 p 5
INDUSTRIAL PRODUCTION INDEX
Industrial production — revised and new
measures — F R Bull July 71 p 551
INFLATION
The road to accelerating inflation is
paved with good intentions
(Francis) — St. Louis June 71 p 9
INTEREST RATES
Interest rates, credit flows, and monetary
aggregates since 1964 — F R Bull
June 71 p 425
LIVESTOCK INDUSTRY
The move to greener pastures — Atlanta
June 71 p 107
MACLAURY, BRUCE K.
Appointed president Federal Reserve
Bank of Minneapolis— F R Bull
May 71 p 421
DEBT MANAGEMENT
The Federal debt: Composition and
ownership — Rich May 71 p 10
The Treasury debt and bond rate
ceilings — Kansas City April 71 p 9
DISCOUNT RATES
Change July 15, 1971 — F R Bull July 71
p 627
ECONOMIC CONDITIONS
ECONOMIC COMMENTARY published
weekly available — Cleve April 71
p 23
Social man and the new stationary
state (Eastburn) — Phila May 71 p 3
EDUCATION — FINANCE
State dollars to school districts — Phila
June 71 p 3
How to pay for higher education — Bost
March 71 p 3
ELECTRIC POWER INDUSTRY
Pressures in the powerhouse — Phila
April 71 p 9
EURODOLLARS
Eurobonds and the Eurobond market —
Cleve April 71 p 3
FARM EXPORTS
Major crops lag in export growth —
Dallas June 71 p 7
FARM OUTLOOK
Agricultural outlook for 1971 — Rich
April 71 p 13
Farm prospects in '71 — San Fran
April 71 p 80
FEDERAL RESERVE BANKS — OPERATIONS
Western central banking — San Fran
April 71 p 75
FEDERAL RESERVE SYSTEM —
PUBLICATIONS
The Fed in Print— Phila June 71 p 24
FLOAT
Check collection and Federal Reserve
float— Rich June 71 p 11
FLORIDA
Sunny skies ahead? — Atlanta April 71
P 71
FOOD PRICES
Food prices higher in 1971 — Chic
April 71 p 2
jT \
27
SEPTEMBER 1971
BUSINESS REVIEW
POPULATION — MIGRATION
Wage differentials spur rural-to-urban
movement— Dallas April 71 p 7
PRICE LEVEL
The relative importance of monetary and
fiscal variables in determining price
level movements: A note — F R Bull
June 71 p 441
PRICES
Estimation of the investment and price
equations of a macroeconometric
model — F R Bull June 71 p 442
PRODUCTIVITY
Productivity changes — Kansas City
April 71 p 3
Productivity and its measurement— Rich
June 71 p 2
REGULATION Q
Interest on deposits act extended —
F R Bull June 71 p 512
REGULATION U
Amended April 16,1971 — F R Bull
May 71 p 399
Amendment July 10, 1971 — F R Bull
July 71 p 607
REGULATION Y
Amendments to Regulation Y — F R Bull
June 71 p 512
Amendment June 30, 1971 — F R Bull
July 71 p 607
ROBERTSON, J. L.
Statement to Congress May 19, 1971
(foreign investment) — F R Bull
June 71 p 482
SAVINGS AND LOAN ASSOCIATIONS
Diversifying the S & L's? — San Fran
June 71 p 116
SAVINGS DEPOSITS
Inundated with savings — San Fran
May 71 p 95
SAVINGS, PERSONAL
The household as a saver— Phila
June 71 p 14
SELECTIVE CREDIT CONTROLS
The experience and recent interest —
Atlanta May 71 p 78
MONETARY POLICY
Monetary aggregates and recent
economic trends — St. Louis April 71
P2
MONEY CIRCULATION
Growing appetite for cash — Chic
April 71 p 12
MONEY MARKET
Financial developments Qi 1971 —
F R Bull May 71 p 365
MONEY SUPPLY
International banking institutions and
the understatement of the money
supply— N.Y. May 71 p 109
The year 1970 — A "modest" beginning
for monetary aggregates — St. Louis
May 71 p 14
What is money? — Chic June 71 p 9
How fast is money growing? — St. Louis
June 71 p 2
MORTGAGES
Mortgage commitment data of life
insurance companies — F R Bull
June 71 p 547
NATIONAL PARKS
Congested parks — a pricing dilemma —
Kansas City June 71 p 3
OPEN MARKET OPERATIONS
Monetary aggregates and Federal
Reserve open market operations —
N.Y. April 71 p 80
Record of policy actions— F R Bull
May 71 p 391
Record of policy actions— F R Bull
June 71 p 503
Record of policy actions — F R Bull
July 71 p 599
OVER-THE-COUNTER MARKET
Revised list of stocks subject to margin
regulations July 12,1971 — F R Bull
July 71 p 628
OWNERSHIP OF DEPOSITS
Survey of demand deposit ownership —
F R Bull June 71 p 456
POPULATION
Population growth in the Third District:
Scorecard from the Census — Phila
June 71 p 12
28
FEDERAL RESERVE BANK OF PHILADELPHIA
TIME DEPOSITS (continued)
Changes in time and savings deposits,
January-April 1971 — F R Bull July 71
p 579
TRANSFER OF FUNDS
Statement of policy on payments
mechanism — F R Bull June 71 p 546
TENNESSEE
Economic horizon brightens — Atlanta
May 71 p 87
TIME DEPOSITS
Changes in time and savings deposits,
October 1970-January 1971 —
F R Bull May 71 p 375
FEDERAL RESERVE BANKS AND BOARD OF GOVERNORS
Federal Reserve Bank of Kansas City
Federal Reserve Station
Kansas City, Missouri 64198
Publications Services
Division of Administrative Services
Board of Governors of the
Federal Reserve System
Washington, D. C. 20551
Federal Reserve Bank of Minneapolis
Minneapolis, Minnesota 55440
Federal Reserve Bank of Atlanta
Federal Reserve Station
Atlanta, Georgia 30303
Federal Reserve Bank of New York
Federal Reserve P.O. Station
New York, New York 10045
Federal Reserve Bank of Boston
30 Pearl Street
Boston, Massachusetts 02106
Federal Reserve Bank of Philadelphia
925 Chestnut Street
Philadelphia, Pennsylvania 19101
Federal Reserve Bank of Chicago
Box 834
Chicago, Illinois 60690
Federal Reserve Bank of Richmond
P.O. Box 27622
Richmond, Virginia 23261
Federal Reserve Bank of Cleveland
P.O. Box 6387
Cleveland, Ohio 44101
Federal Reserve Bank of St. Louis
P.O. Box 442
St. Louis, Missouri 63166
Federal Reserve Bank of Dallas
Station K
Dallas, Texas 75222
Federal Reserve Bank of San Francisco
San Francisco, California 94120
29
FOR THE R E C O R D ...
2 YEARS
AGO
YEAR
AGO
SUM M ARY
Third Federal
Reserve District
United States
Per cent change
Per cent change
July 1971
from
mo.
ago
MANUFACTURING
Production .............................
Electric power consumed
Man-hours, total' ...........
Employment, total
CONSTRUCTION'4 .............
COAL PRODUCTION ...........
JU LY
1971
year
ago
7
mos.
1971
from
year
ago
July 1971
from
2 YEARS
AGO
YEAR
AGO
Manufacturing
7
mos.
1971
from
mo.
ago
year
ago
year
ago
-
-
N/A
LO C A L
CH A N G ES
Standard
Metropolitan
Statistical
Areas*
-
4
0
0
- 1
-1 5
-11
0
7
6
0
+ 14
+ 14
-
0
- 8
- 7
- 1
+ 15
N/A
2
PRICES
Wholesale
Consumer
+ 15
+ 8
+ 29
+ 11
+41
+ 8t
+ 16
+ 10
+ 26
+ 12
+ 36
+ 5t
-
ot
•Production workers only
•'Value of contracts
••'Adjusted for seasonal variation
+ 5*
+ 6*
Total
D e p o sits'"
Per cent
change
July 1971
from
Per cent
change
July 1971
from
Per cent
change
July 1971
from
Per cent
change
July 1971
from
year
ago
month year
ago
ago
-
4
-
6
- 5
-32
+ 24
- 4
+ 14
N/A
2
-
7
+ 1
-
1
-
1
-
4
-
.. -
6
-
7
-13
0
-
7
0
Harrisburg . . . .
-
3
0
0
- 2
+ 1
0
+ 15
+ 7
+ 22
+ 10
+ 30
+ 15
+ 16
+ 7
+ 23
+ 16
+ 27
+ 15
+ 3
0
0
+ 3
+ 4
+ 3
+ 5
f 15 SMSA’s
^Philadelphia
-
year
ago
month year
ago
ago
+ 2
+ 4
-
6
+ 24
-10
+ 12
+ 2
+ 24
-
6
+ 11
+ 2
+ 12
-1 4
+ 3
0
+ 15
+ 10
-
4
+ 11
0
+ 18
-
2
+ 89
5
-
0
+ 6
1
0
-
1
1
-
9
+ 24
0
-
-
2
month
ago
0
5
Lehigh Valley
-
1
-
7
-
1
+ 1
-
7
+ 8
-
1
+ 18
Philadelphia
+ 1
-
6
+ 1
+ 1
-
6
+ 8
+ 7
+ 13
Reading .............
+ 8
Scranton
-
3
-
4
-
4
+ 1
-
2
+ 17
-
3
........... -
4
-
5
-
1
+ 4
+ 1
+ 16
-
1
+ 17
-
3
0
-
3
4- 8
-
+ 11
0
+ 14
5
+ 1
+ 4
-2 9
2
-40
Wilkes-Barre
.............................
.............................
Check
Paym ents"
0
Lancaster...........
+ 3
0
0
- 3
+ 1
- 5f
Payrolls
Atlantic City . .
Johnstown
BANKING
(All member banks)
Deposits ................................
Loans ........................................
Investments ...........................
U.S. Govt, securities
Other .....................................
Check p aym en ts'" . . . .
Banking
Employ
ment
month
ago
Wilmington
8
JU LY
1971
York
...................
0
-
5
+ 10
-
'Not restricted to corporate limit* of cities but covers areas of one
or more counties.
• 'A ll commercial banks. Adjusted for seasonal variation.
•••Member banks only. Last Wednesday of the month.
@FedFRASER