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July 1996, Vol. 119, No. 7
The rising costs of health care have focused many eyes on the medical care components of the Consumer Price Index (CPI). In 1988, the hospital component of the CPI posted an 11 percent increase. This was well above the increase in the CPI for all items, and was even greater than the rises for other medical care components such as Prescription Drugs and Physicians' Services. (See chart 1.) Although the rate of growth in the Hospital and Related Services index has since slowed - it was 4.6 percent in 19951 - it is still above that of the overall CPI and other medical care components.
Interest in the movements of the hospital index has generated an abundance of commentary on their significance. While this attention has kept the issue from becoming dormant, it also has propagated subtle misperceptions about the foundations, design, and data collection procedures for the CPI Hospital and Related Services Index. Design and data collection, areas with detail not routinely documented for the public, have been particularly vulnerable to misinterpretation.
This article provides the background needed to interpret the CPI Hospital and Related Services Index. Following a description of sample selection and data collection for hospitals in the CPI sample is a discussion of some index construction basics: definitions of out-of-pocket hospital costs paid by urban consumers, and clarifications of the concepts of hospital reimbursement and the transaction price. The article concludes with an overview of two issues critical to improving the CPI for Hospital and Related Services.
This excerpt is from an article published in the July 1996 issue of the Monthly Labor Review. The full text of the article is available in Adobe Acrobat's Portable Document Format (PDF). See How to view a PDF file for more information.
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1 The 1995 December-to-December price change, 4.6 percent, was the smallest increase posted in any year since the index was first published in 1978.
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