Medical Care Expenditure Indexes for the US,

1980-2006

Ana Aizcorbe (VaTech)

Tina Highfill (BEA)

Summary

• Goal: construct historical price indexes for health sector

• Our contribution:

– Built concordances to make variables of interest consistent over

three different surveys of patients’ medical histories:

• 1980 National Medical Care Utilization and Expenditures Survey

• 1987 National Medical Expenditure Survey

• 1996-2006 Medical Expenditure Panel Survey

– Constructed Medical Care Expenditure indexes and compared

them to deflators used in the NIPAs.

Finding:

Price Growth in MCE Can Exceed that in the Official Statistics

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1980-1987 1987-1996 1996-2006

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Medical Care Expenditure Price Indexes and BEA Deflators

MCE BEA deflators

Outline of talk

Talk is less about what we did and

more about what we learned

• What are “Medical Care Expenditure Price Indexes

(MCEs)?”

• What kinds of things can cause MCEs to diverge from

official price indexes?

• Are our results plausible?

Three Types of Price Indexes

1. Cost of Living Indexes

2. Medical Care Expenditure Price Indexes

3. Service Price Indexes

4. Producer Price Indexes

1. Cost of Living Indexes (COLIs)

Theoretical basis for a Cost of Living Index for medical care services (Cutler et al 1998):

• Practical implication: – Service= bundle of treatments

– “Quality” = Marginal improvements to health

• Empirical work found potential for upward bias in official price indexes: – Cutler et al found that their COLI for heart attacks grows slower than an index

that mimics the CPI

– Other case studies assumed the marginal improvements to health were the same and found lower price growth from: • Shapiro, Shapiro and Wilcox (2001):

Shifts from inpatient cataract surgeries ambulatory surgical centers

• Berndt et al (2001)

Shifts from talk therapy for depression drug therapy

2. Medical Care Expenditure Price Indexes (MCEs)

• Redefines the “service” provided by medical care as the treatment

of disease:

• Expenditures = spending on the treatment of depression ( all spending: Ss cd2 xd,s

2)

• Output = number of patients treated for depression (number of cases: Nd)

• Price = spending per patient treated for depression (cost per case: cd2)

• Does not take marginal improvements to health from treatment

(outcomes, “quality”) into account, so not a COLI

• Interpretation: so long as the quality of treatments does not decline,

an MCE is an upper bound to the “true” price index.

3. Service Price Indexes (SPIs)

A Service Price Index tracks changes in the price of a fixed

basket of “services:”

3. Service Price Indexes (SPIs)

A Service Price Index tracks changes in the price of a fixed

basket of “services:”

It holds treatments per patient (utilization) fixed at xd,s1/Nd

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• Any change in utilization will drive a wedge between these

two indexes. For example,

a. If treatments shift from one industry (s) to another (e.g., depression)

b. Other utilization effects:

• New treatments applied within same industry (new s) : old X-rays replaced

with new MRI imaging

• Add new drugs to old drugs for treatment of heart disease

a. Cross-industry shifts and MCE vs SPI

MCE falls, SPI is flat MCE <SPI

a. Cross-industry shifts and MCE vs SPI

MCE falls, SPI is flat MCE <SPI

MCE rises, SPI is flat MCE >SPI

Cross-industry shifts typically show MCE<SPI

Findings are robust to different time periods, data sets and

approaches.

b. Other utilization effects can work in opposite direction

• Dunn, Liebman and Shapiro (2012) discovered that other

utilization effects were also numerically important and

worked in the other direction.

• Can only look at this issue with data that contain

procedure detail.

4. Producer Price Indexes (PPIs)

• Official PPI is a special case of an SPI that controls for

treatments, outlet and insurance type at a very granular

level.

• Examples of what the PPI prices

– Individual treatments

• 11-digit NDC codes for drugs (generic and branded priced separately)

• 5-digit procedures codes for surgeries, lab work, in office procedures

– Outlet: Dr. Alan Stone, Washington, DC; Sibley Hospital, DC

– Insurance type: Blue Cross Blue Shield, Standard Option

Plan, with $200 deductible and $10 copay for office visits

4. Producer Price Indexes (PPIs)

• Official PPI is a special case of an SPI that controls for

treatments, outlet and insurance type at a very granular

level.

• Examples of what the PPI prices

– Individual treatments

• 11-digit NDC codes for drugs (generic and branded priced separately)

• 5-digit procedures codes for surgeries, lab work, in office procedures

– Outlet: Dr. Alan Stone, Washington, DC; Sibley Hospital, DC

– Insurance type: Blue Cross Blue Shield, Standard Option

Plan, with $200 deductible and $10 copay for office visits

Shifts in insurance are potentially important over this

period

• Historically, managed care

plans paid physicians less than

other insurance plans (Cutler

and Zeckhauser, 1997)

Cd,sHMO < Cd,s

notHMO

• HMOs enrollment tripled from

1987-1999

• Enrollment fell back beginning

in 2001 with backlash

But, our data present problems in trying to pin this down

further

Conclusion

Summary:

• Several factors can generate

differences in MCEs and PPIs •Cross industry shifts in treatments

•Other utilization shifts

•Shifts in type of insurance

• The differences can go either way

• Patterns we see in the data are

plausible given developments in

health sector over this period.

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1980-1987 1987-1996 1996-2006

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Medical Care Expenditure Price Indexes and BEA Deflators

MCE BEA deflators

What types of things drive differences in the MCEs and

PPIs?

Ceteris Paribus PPI MCE COLI

Increase in prices of individual procedures ↑ ↑ ↑

Increase in number of procedures performed on patient, with no change in

quality of care -- ↑ ↑

Increase in quality of care, no change in cost -- -- ↓

Change in location of procedures from high cost to low cost industries (e.g.,

ASCs) with no change in quality -- ↓ ↓

Patients change insurance coverage from companies that pay providers a lot to

those that pay little -- ↓ ↓

Mix of conditions shifts towards more expensive conditions

-- -- --