Academic journal article Monthly Labor Review

Hospital Price Inflation: What Does the New PPI Tell Us?

Academic journal article Monthly Labor Review

Hospital Price Inflation: What Does the New PPI Tell Us?

Article excerpt

To expand coverage of Producer Price Indexes in the services industry, the Bureau has designed a survey to study inflation in the hospital industry

Since 1983, health care spending has increased dramatically in the United States. According to the Health Care Financing Administration, personal health care expenditures made up 9.3 percent of gross domestic product in 1983, but 10 years later, such expenditures climbed to 12.3 percent of gross domestic product.(1) This increasing share of gross domestic product warrants a closer look into pricing and inflation measures in the health care industry. To accomplish this, the Bureau of Labor Statistics analyzed the hospital care industry because it represents one-third of personal health care expenditures--the largest expenditure category.

As part of an overall strategy designed to expand service industry coverage in the Producer Price Index (PPI), the Bureau of Labor Statistics began a survey design study for the hospital industry in 1989. Preliminary research included extensive discussions with representatives from more than 20 hospital establishments, the Health Care Financing Administration, the BES Consumer Price Index (CPI) program, and the American Hospital Association. Sample collection began in January 1992, and by the following year, the PPI for the hospital industry was published. Other hospital industry price statistics have been available for some time. In fact, BES has published the CPI for hospitals and related services since 1977. Also, the Health Care Financing Administration publishes a quarterly input price index to provide measures for Congress to adjust medicare program reimbursements to health care providers.

This article profiles the new PPI hospital industry price indexes. It highlights the survey sample and design, analyzes hospital price inflation as measured by the PPI, summarizes the results, and briefly compares the hospital industry measures of the PPI with those of the CPI.

Scope of the survey and sample

Producer Price Indexes measure average changes in prices received by domestic producers for their output. The entire marketed output of domestic producers is in scope for the Producer Price Index. Traditionally, most of the price index data published by the Producer Price Index is obtained through probability sampling of mining and manufacturing industries. However, over the last 6 years, data collection and price index publication has expanded to include more service industries.

Industry definition. According to the Standard Industrial Classification Manual (SIC Manual), inpatient medical care is provided in three separate industries: SIC 8062, general medical and surgical hospitals; SIC 8063, psychiatric hospitals; and SIC 8069, specialty hospitals, except psychiatric.(2) The majority of the hospital service revenues are accrued by general medical and surgical hospitals. Therefore, the remaining discussion will focus exclusively on SIC 8062. The PPI follows the SIC Manual definition for general medical and surgical hospitals (SIC 8062): establishments primarily engaged in providing general medical, surgical, and other hospital services. Such services range from providing room, board, and nursing services to the provision of highly specialized diagnostic, surgical, and therapeutic services. These establishments have an organized medical staff, inpatient beds, and equipment and facilities for providing complete health care. Convalescent homes with extended care facilities, sometimes referred to as convalescent hospitals, are classified in industry 8051. Associations or groups that limit their services to providing insurance coverage against hospitalization or medical costs are classified in insurance carriers (SIC major group 63).

Because the SIC Manual does not explicitly distinguish between hospitals with respect to ownership or control, Federal hospitals, such as those associated with the military, Veterans Administration, and the National Institutes of Health, also are included in the hospital industry. …

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