Proposed regulations by the Health Care Financing Administration would add hospitals' capital costs to Medicare's prospective payment. The logic behind the move is flawed by a lack of empirical data regarding hospitals' capital spending decisions. And the proposal errs in not including leased equipment and facilities, post-transition assistance to capital-needy hospitals, and the cost of insurance, taxes, license, royalty fees, and related organizations' capital costs of depreciable assets not located on the hospital's premises. Since capital represents 10 percent of hospital spending, the government would be better off developing innovative approaches to solve cost problems.