Several times in the highly informative article "Promises, Promises" (Feb. 19, p. 26) it's stated that the medical component of the Consumer Price Index measures changes in the retail prices consumers pay for hospital and medical care. Its application in antitrust proceedings could result in negotiated hospital prices being higher than intended.
The CPI medical component measures changes in the prices hospitals and physicians charge to consumers for services rendered. Today, however, billed charges or list prices are heavily discounted, owing to the healthcare industry's excess capacity paired with the spread of managed care. The CPI medical component therefore may not be a reliable indicator of prices paid by a rapidly growing segment of the population.
The Producer Price Index series (launched in January 1993) and PPI physician series (launched in January 1994) focus on changes in the net prices hospitals and physicians are paid for services. In other words, the PPI indexes measure changes in billed charges less applicable contractual allowances and discounts.
During its brief existence, the CPI medical inflation rate has perceptibly outpaced its PPI counterpart. Continuation of this trend will mean higher prices for care delivered by merged hospitals, unless the increases are held to the lower of changes in the CPI or PPI medical components.
PAUL L. GRIMALDI
Principal, Birch & Davis
Health Management Corp.
Silver Spring, Md.