Prologue: Republican Sen, David Durenberger of Minnesota, chairman of the Senate Finance Subcommittee on Health, said in a speech not long ago, if the hospital industry thought the recent flap over paying investor-owned hospitals a return on equity created controversy, “you ain't seen nothing yet,” Wait, said Durenberger, until Congress takes up the issue of how hospital capital expenditures should be factored into Medicares new prospective payment mechanism, a task that by statutory deadline must be completed by October 1, 1986, Congress has directed the Department of Health and Human Services (DHHS) to complete a study within eighteen months on how to include capital costs in a prospective pricing formula. In this article, Gerard Anderson and Paul Ginsburg set out options that Congress may consider in this regard, Anderson recently resigned an important position at DHHS where he was a central figure under Assistant Secretary Robert J, Rubin in the development of the administrations prospective payment p...