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December 1996, Vol. 119, No. 12
Revision of the CPI hospital services component
Elaine M. Cardenas
Effective January 1997, the Bureau of Labor Statistics will begin publication of a revised hospital and related services index, a component of the medical care major group of the Consumer Price Index (CPI). The revised index incorporates several important improvements in the structural definition and methodology used to measure hospital price change. These developments are the product of several years of data gathering from the hospital industry and from BLS field staff currently pricing hospital services. (See exhibit 1.) Experience gained through implementation of intermediate enhancements since 1990 also contributed significantly to the final direction of these changes.
This article first outlines the changes that will be made to the hospital services index, and the likely benefits of these changes. Next, it discusses the immediate impact of the changes on CPI data users and on field collection activities. And finally, it explains where the changes position the CPI relative to future industry developments and alternative methods for measuring hospital price movement. (Changes in the measurement of nursing home price movement are not covered here.)
The CPI item structure, which is used in the sample allocation and index estimation processes,1 currently partitions the consumer marketplace into seven major groups of expenditures. (After the 1998 revision of the overall CPI, the item structure will have eight major groups.) Medical care is a major group in both the current and the 1998 item structures, and as of December 1995, it represented 7.362 percent of total consumer expenditures.2 By definition, the medical care expenditures eligible for the CPI represent out-of-pocket expenses paid by the consumer. Fees (not recouped through health insurance) paid directly to retail outlets for medical goods and to doctors and other medical professionals, as well as insurance premiums paid by consumers for health care coverage, are considered to be direct consumer out-of-pocket medical expenses.
The medical care major group is divided into subcategories consisting of two intermediate groups (medical care commodities and medical care services), four expenditure classes (of which hospital services is one), and nine published strata. Strata are the building blocks of the CPI item structure.3 It is at the stratum level of the CPI item structure hierarchy that the most basic aggregate prices are calculated, and that quality and quantity are held constant. Due to the importance of the item stratum in the calculation of the CPI, improvements to stratum sampling and definitions, and to the ability of item strata to reflect what is available in the marketplace, will improve the quality of CPI estimates of price change.
Hospital services is a uniquely difficult area in which to measure price change. Defining the hospital service in itself presents special issues within the parameters of a modified Laspeyres index4 such as the CPI. Attempting to identify and fix the limits of items in an industry in which technological advances continuously redefine an already difficult-to-describe output has made it necessary to take a new look at the traditional inputs formula for describing hospital services.5 It is possible to view the hospital industrys output from multiple perspectives related to its various producers and consumers. For the 1997 revision of the CPI hospital sample, a payor-centered, treatment-related view has been taken as a first step toward a future measurement of hospital visit outcomes that will be fully patient-centered.
This excerpt is from an article published in the December 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 See Walter Lane, "Changing the item structure of the Consumer Price Index," pages 1825, this issue.
2 Relative importance of components in the CPI, 1995, Bulletin 2476 (Bureau of Labor Statistics, February 1996), p. 6
3 Lane, "Changing the item structure."
4 Paul A. Armknecht and Daniel H. Ginsburg, "Measuring Price Changes in Consumer Services," in Zvi Griliches, ed., Output Measurement in the Services Sector, National Bureau of Economic Research Studies in Income and Wealth, no. 56 (University of Chicago Press, 1992), pp. 11011.
5 For more information on hospital item descriptions, see Elaine M . Cardenas, "The CPI for hospital services: concepts and procedures," Monthly Labor Review, July 1996, pp. 3242.
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