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Private hospital inflation is lower than overall medical inflation

06 May 2008

In Categories: Economic

Why are inflation measures important?

Recently, the private hospital sector was again accused of overcharging patients – and, as evidence, mainly two issues were cited, namely the overcharging of certain medical items and the increasing total payments by medical insurers to private hospitals.

Medical inflation is a political “hot potato” in many countries around the world, as typically it is higher than general inflation. Most countries that measure medical inflation tend to have a higher medical inflation rate than an overall inflation rate.

Private hospitals form a very important part of the South African medical sector. Therefore it is important that these issues are researched and addressed. Private hospital inflation is the most important way to test these two claims, because, if private hospital tariff increases are to blame, the private hospital sector had better look into its costs.

While measuring inflation cannot indicate if individual items are overcharged or not, private hospital inflation can indicate whether or not this practice is widespread and increasing. A low private hospital inflation would indicate that overcharging is not widespread and probably not of an increasing nature.

When measuring inflation, a basket of goods and services that a typical consumer uses is constructed by a statistical agency, using income and expenditure surveys. StatsSA conducts a survey of income and expenditure of households every five years. This survey is conducted by enumerators visiting a number of households throughout South Africa to obtain details of their income and expenditure. The information obtained in this survey is weighted according to the population census figures in order to represent all households in South Africa.
This survey is conducted according to international standards and the methods to categorise goods and services are described by international agencies such as UNstats. The Special Data Dissemination Standard of the International Monetary Fund (IMF) describes the way in which this information is collected and distributed by each country.
Depending on spending patterns of consumers, inflation baskets are made up to reflect the influences of price increases on an average consumer. In South Africa, the inflation basket is made up of 1 200 items. Medical inflation makes up 8,07% of the CPIX (inflation rate, excluding interest rates, which is the preferred inflation measure).

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