How fast are hospital prices really rising?

Area of Science:

• Health Economics
• Healthcare Management
• Price Index Analysis

Background:

• The Consumer Price Index (CPI) hospital services component measures list prices, not actual transaction costs.
• Increasing enrollment in managed care organizations (HMOs, PPOs) leads to negotiated discounts.
• The gap between list price inflation and actual price inflation may be widening.

Purpose of the Study:

• To investigate the existence and magnitude of a gap between hospital list price inflation and actual price inflation.
• To compute parallel indices for list and actual hospital prices.
• To assess the implications for inflation measurement and cost containment strategies.

Main Methods:

• Analysis of hospital price data from California hospitals for fiscal years 1983-1988.
• Computation of parallel Consumer Price Index (CPI) and actual price indices.
• Comparison of inflation rates derived from list prices versus discounted prices.

Main Results:

• Hospital list price inflation significantly exceeded actual price inflation between 1983 and 1988.
• The disparity between list and actual price inflation was substantial, potentially doubling in recent years studied.
• A notable gap exists, indicating that CPI hospital services data may not accurately reflect real healthcare cost inflation.

Conclusions:

• The CPI hospital services component is an inappropriate measure of overall hospital price inflation due to negotiated discounts.
• Managed care discounts create a significant divergence between list and actual healthcare prices.
• Findings impact the evaluation of healthcare inflation and the effectiveness of cost containment strategies.