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Term - Hospital Market Basket

Description - A market basket is a measure of all the goods and services needed that a specific organization must purchase to provide care. There are nursing market baskets, home health market baskets, and of course hospital market baskets. A hospital market basket is the total cost of all the goods and services that hospital must buy to provide care. A market basket uses a fixed set of items, for example, there is a market basket for the general economy, which takes into account the price of average items, including milk and bread. The hospital market basket measures a fixed set of goods and services for the hospital, and compares it with how much those same items would cost at a later, or earlier time.

The Office of the Actuary (OACT) within the CMS is responsible for producing the hospital market basket. The basket levels and percentage changes are released quarterly. Depending on market conditions there is some room for error however it is believed to be relatively small and around zero. Every five years or so the market basket is rebased though this is dependent on the availability od data.
The primary source for this data is the Medicare Cost Reports. These reports are used to construct the weights of the major cost categories. The primary source for price proxies is Bureau of Labor Statistics data.

Through a rather complicated formula, the hospital market basket is calculated each year, in what is called a fixed-weight index. In the same way you would look at the cost of a loaf of bread a year ago compared to today to anticipate the future, Medicare uses this data to compare the cost of goods and services over a period of time to better predict costs for the future.

Applications - Medicare uses this data to better predict how costs will rise and fall in the future. They update pricing on various items, depending on how the market basket changes. The market basket is also a good indicator of inflation in that market. Medicare actually uses many different market baskets to gather its data from; the hospital market basket is just one used to accurately measure price changes in the health industry.

Related Terminology -
PPS (Prospective Payment System)
Market Basket

Web Resources -
Market Basket Research and Information
Market Basket Updates

Citiations/References -
Official PDF Study
Market Basket Data
Google Definition Search
CMS Market Basket Information

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