How fast are hospital prices really rising?

David Dranove*, Mark Shanley, William D. White

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

14 Scopus citations

Abstract

The hospital services component of the Consumer Price Index (CPI) measures the cost of hospital services to private patients paying list prices. It is, however, widely used as an estimate of the overall rate of inflation in hospital prices in spite of the fact that there are strong reasons to believe that it is inappropriate to use the CPI for this purpose. This is because: 1) A growing number of patients are enrolled in health maintenance organizations (HMOs) and preferred provider organizations (PPOs), which negotiate discounts from list prices; and 2) the size of the discounts may have been increasing. The potential result is a gap between the rate of inflation of list prices and the rate of inflation of actual prices paid in transactions. This study explores whether such a gap exists and determines its possible magnitude. In addition, parallel indices for list and actual prices are computed on the basis of data from California hospitals for fiscal years 1983-1988. The analysis suggests that list price inflation has greatly exceeded actual inflation-by a factor of two for recent years. These findings have broad implications for evaluating not only inflation but also the impact of cost containment strategies.

Original languageEnglish (US)
Pages (from-to)690-696
Number of pages7
JournalMedical care
Volume29
Issue number8
DOIs
StatePublished - Aug 1991

Keywords

  • Actual price cost
  • Consumer Price Index
  • List price
  • Rate of inflation

ASJC Scopus subject areas

  • Public Health, Environmental and Occupational Health

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