Measuring hospital input price increases: The rebased hospital market basket

The input prices indexes used in part to set payment rates for Medicare inpatient hospital services in both prospective payment system (PPS) and PPS-excluded hospitals were rebased from 1982 to 1987 beginning with payments for fiscal year 1991. In this article, the issues and evidence used to determine the composition of the revised hospital input price indexes are discussed. One issue is the need for a separate market basket for PPS-excluded hospitals. Also, the payment implications of using hospital-industry versus economywide measures of wage rates as price proxies for the growth in hospital wage rates are addressed.