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US wants to revise setup for medicare payments

With medicare's hospital costs expected to soar 32 percent in the next two years, the Reagan administration says it wants to encourage states to adopt a new payment system that rewards thriftiness.

Under the government's payment proposal, hospitals would be paid a fixed fee based on a patient's diagnosis, keeping whatever money they did not spend. Medicare now reimburses hospitals for each service they render, such as X-rays, operations, and tests. Critics say the current system encourages hospitals to order needless treatment.

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