What necessarily happens to average quality in a hospital market when the generosity of insurance coverage increases? How does this relate, if at all, to the data appearing in Chapter 1 on increases in hospital spending through time in the hospital sector?

18 Chapter 1 Why Health Economics? The global index of medical care prices masks important differences between com- ponent parts that make up "the health care sector." Table 1.4 shows the price index (1982- pain n 1984 = 100) for some important components (hospital care, physician services, dental names services, and prescription drugs) in addition to the overall CPI and the medical CPI. as Cel Between 1960 and 2015, overall prices ("total CPI") had increased by a factor of 8, leadin and medical prices by a factor of 20, about 2.5 times the increase in the CPI. This masks tacted howe important differences in various parts of the "medical CPI." Hospital services increased by a whopping factor of 83, physician and dentists' services both by a factor of about 17-18 (a bit unav sion more than twice the CPI rate), and prescription drugs by about the same as the CPI. But even that is misleading: In recent years, prescription drugs have been the fastest-growing part of the medical market basket (in terms of dollars spent), and have drawn increasing public and Me political attention. Chapter 15 discusses prescription drug R&D and spending in detail. Med per res TABLE 1.4 Price levels through time (base 1982-1984 = 100) div me Year CPI Medical care Hospital services Physicians' fees Dentists' fees Prescription drugs of 1960 29.6 22.3 9.3 21.9 27.0 54.0 tec 1965 31.5 25.2 12.3 25.1 30.3 47.8 th 1970 38.8 34.0 34.5 39.2 47.4 in 23.6 1975 53.8 47.5 38.3 48.1 53.2 51.2 1980 82.4 74.9 58.0 76.5 78.9 72.5 1985 107.6 113.5 115.4 113.3 114.2 120.1 1990 130.7 162.8 175.4 160.8 155.8 181.7 1995 153.5 223.8 253.0 208.2 205.3 238.1 2000 172.2 260.8 317.3 244.7 258.5 285.4 2005 196.8 323.2 439.9 287.5 324.0 349.0 2010 225.0 400.0 600.0 340.0 400.0 2015 236.0 454.1 425.0 772.6 370.3 455.5 481.1 Source: Bureau of Labor Statistics, Consumer Price Index. All of these "component part" indices mask important changes in what is really being provided. For hospital care, the technology available within the hospital has dramatically improved within this half-century, but perhaps equally as important (as we shall explore more in later chapters), the mix of patients within the hospital changed at least as much. With the advent of new drugs and outpatient (same-day) surgery, those patients who actually enter in 2010 than those in 1960. a hospital as "inpatients" are on average far sicker and require far more intensive treatment The mix of patients within a physician's or dentist's office has probably not changed that dramatically (except for the general aging of the population), but the available technology has changed, as has the overall degree of specialization of providers. Prescription drugs have also changed. (These drugs don't include those used within the hospital setting, such as cancer therapy, but only those purchased by consumers and used outside the hospital setting.) A bottle of aspirin contains the same medication as it did in 1960 (a nonprescription item, of course), but many patients will have switched to alternative