Hospital Cost Inflation and Physician Payment

. The hypothesis that physicians use control over hospital resources to maximize their net revenue is examined to determine whether such behavior leads to more rapid growth of hospital costs. Theoretical and empirical studies are reviewed and hypotheses are developed regarding the relationship of cost increases to the method of physician payment. Exploratory comparisons of increases in hospital cost per patient day are made between Health Maintenance Organizations with salaried practice and Medical Foundations with fee‐for‐service. The association of international differences in the rate of increase of hospital cost per day with method of physician payment is explored in an Appendix in the microfiche supplement.