U.S. BLS Plans for Developing Disease Based

Price Indexes

Michael W. HorriganAssociate Commissioner

May 10th 2010

Presentation Outline

Motivation Recommendations for producing

disease based price indexes Issues and challenges in estimating

disease based price indexes CPI approach PPI approach Concluding remarks

2

MOTIVATION

National Health Concern

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Health Inflation Compared to Overall Inflation

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Is this price growth alarming?

For over forty years, many claim that the CPI Indexes are upwardly biased.

Many believe that bias occurs because we use the wrong concept.

We price health care services and goods, and not the treatment of the disease.

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Disease based concepts for Medical Expenditure (Triplett, 1999) Patients use medical services for

human repair. Consumers use auto body shops for car repair.

For a car repair, the consumer pays one price, and the shop buys all the parts and labor to fix the car.

Patients do not pay one provider one price for a human repair.

They separately purchase physician visits, RX, etc. There is no market price for the entire treatment of diabetes, as there is for a car repair.

Triplett suggests reporting by disease and not service.

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Examples of potential upward bias in CPI medical indexes

Shift in the treatment of a cataract disease from in-hospital to out-patient facility care reducing the price of treating the disease – Shapiro and Wilcox (2001).

Substitution from office visits to the use of pharmaceutical medications reducing the cost of treating mental illness - Berndt et al (2000).

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Major Medical InnovationsAffecting Input Use

Innovation Service/Product Disease TreatedMRI and CT Diagnostic/Phys.

Visitsvarious

ACE inhibitors RX/Hospitals hypertension

Balloon angioplasty Surgery/Hospitals coronary artery disease

Statins RX/Hospitals high blood cholesterol

Mammography Diagnostic breast cancer

Coronary Bypass Surgery coronary artery disease

H2 blockers RX stomach

SSRI anti-depressants RX/Therapy Visits depression

Cataract extraction Inpatient/Outpatient cataracts

Hip and knee replacement Inpatient/Outpatient orthopedic

Biopharmaceuticals RX/Hospitals/Phys. mostly cancer

RECOMMENDATIONS FOR PRODUCING DISEASE

BASED PRICE INDEXES

Recommendations Triplett (1999) proposed that BEA and the NHEA

report medical expenditures by disease.

At What Price (2002), Recommendation 6-1, established a methodology for measuring disease based price indexes. Use “claims database to identify and quantify the inputs

used in” the treatment of a disease. “On a monthly basis, the BLS should reprice” current

medical inputs keeping the quantities fixed. “every year or two” update the quantities of inputs used

to treat a disease. When updated, “the index will jump at the linkage

points.”11

Recommendations CNSTAT panel - Strategies for a BEA Satellite

Health Care Account (2009)

Set up to review plans by the U.S. Bureau of Economic Analysis to create a BEA satellite account that reports medical PCE by disease.

Very interested in U.S. BLS Producer Price Index Program to produce disease based price indexes

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ISSUES AND CHALLENGES IN ESTIMATING DISEASE BASED PRICE INDEXES

Issues and challenges

An episode of treatment often, if not always, cross provider classes Treatment protocol and

reimbursement requirements– Eg., knee replacement surgery

Actual path of discovery and treatment can vary widely

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Issues and challenges Episode of treatments is not a concept for

which universe frames exist for drawing stratified probability samples based on revenue.

Second best alternative is to aggregate across provider classes by mapping coding structures for each provider to diseases

Challenge and growing problem of co-morbidities

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Issues and challenges

Protocols for treating disease can change over time Changes in protocols can occur within

and across provider classes Some changes in protocols may

represent a quality change of the same protocol

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Issues and challenges

Deciding when a substitution has taken place is difficult Independent medical expertise Comparativeness effectiveness

research Penetration rate of substitute protocols Need to continue pricing the old and

new treatment protocols after deciding a substitution has taken place?

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CPI APPROACH

Using the Medical Expenditure Panel Survey

(MEPS)

MEPS does a survey for medical expenditures and medical utilization. Substitutions toward less costly inputs should be in the data.

It is representative of the civilian non institutionalized population.

It surveys both households and providers on the disease contracted and the use of goods and services to treat those diseases.

There is no charge for use.

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Using MEPS to Generate Price Indexes Organized by Disease

Merge the MEPS Conditions file and Event Files

For each disease get per patient input quantities.

Use CPI monthly relatives for physicians, RX, and hospitals to measure monthly price growth.

Each year the quantity of the inputs used for each disease are updated. If there is a substitution to a less expensive input, there will be a downward jump in the index.

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Average per Patient Quantities(Utilizations)1998-2004

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Mental Disorders Example

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Ye ar O ffi ce

V is i t M e an

M e an H o s p i ta l

A d m is s io n s

M e an H o s p i ta l N u m b e r

o f N ig h ts

M e an Em e rg e n cy

R o o m V is i ts

M e an O u tp a ti e n t

V i s i tsM e an

P re s crip ti o n s

1998 4.73 0.05 0.95 0.03 0.44 1.861999 4.39 0.05 0.52 0.03 0.46 1.982000 4.50 0.03 0.29 0.03 0.33 2.022001 3.79 0.05 0.41 0.05 0.18 2.032002 3.88 0.04 0.39 0.04 0.18 2.012003 3.83 0.04 0.42 0.04 0.21 2.022004 3.99 0.03 0.40 0.04 0.22 2.06

1999- 2004 C u m m u lati v e In d e x G ro w th f o r M e n ta l D i s o rd e rs

A cco u n ti n g f o r le s s e x p e n s iv e in p u ts 7.20%F ix e d 1998 In p u ts 35.50%

Results

Expenditure Method

Fixed Quantities

Quantities

Updated Yearly

Adjusted for Co-

morbidities

Total Expenditures

35.85% 33.2% 30.91%

Out of Pocket Expenditures

28.31% 31.63% 30.57%

BLS CPIScope 30.32% 30.55% 28.81%

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Why Do the Results differ by Expenditure Method?

Most of the savings accruing from the shift from inpatient to outpatient hospital goes to third party payments.

Hospital prices are rising more rapidly than physician or pharmaceutical prices, and an index based on total expenditures has a higher hospital weight than an index based on out of pocket payments. Therefore both indexes for out of pocket payments are less than the index for total expenditures.

Consumers pay a very small fraction of total inpatient expenses. A shift from inpatient to outpatient for a disease category increases the share of out of pocket expenditures for treating that particular disease category.

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Accounting for utilization changes decreases the price

index for

Diseases of the respiratory systemOther conditionsDiseases of the circulatory systemDiseases of the genitourinary systemNeoplasmsDiseases of the musculoskeletal system and connective tissueDiseases of the digestive systemDiseases of the blood and blood-forming organsComplications of pregnancy, childbirth, and the puerperiumMental disorders

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Accounting for utilization changes increases the price

index for

Diseases of the skin and subcutaneous tissueInfectious and parasitic diseasesCongenital anomaliesInjury and poisoningDiseases of the nervous system and sense organsEndocrine, nutritional, immunity disorders (includes

diabetes and high cholesterol)

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Key Findings Increased utilization intensity for

diabetes, and cholesterol management. Largest index drop in Mental Disorders. The savings to third party payments

differs from out of pocket savings. The prices for inpatient hospital services

are rising faster than for other services. This has a greater impact on third party payments than out of pocket payments.

PPI APPROACH

PPI Future plans

U.S. Census Bureau is collecting revenue by chapter titles of the ICD-9 manual.

BLS can aggregate items from each of the following industries to these same disease categories: Hospitals (DRGs) Offices of Physicians (ICD-9, CPT) Diagnostic Imaging Centers (ICD-9) Medical Laboratories (ICD-9) Pharmacies (Primary Therapeutic Equivalent)

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PPI Future Plans

When does a substitution take place? Need for independent judgment on

changes in what is a change in the standard treatment protocol.

Plans to continue pricing each item for current medical price indexes even after a directed substitution has taken place and a price drop is recorded.

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PPI Future Plans

Quality change CMS data on adherence by hospitals on

adherence to standard protocols for heart attack, heart failure, and pneumonia.

Resampling and changes in weights (utilization rates) Laspeyres fixed quantity formula Resampling is done every 7 years.

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CPI and PPI Future Plans

CPI to update the results of their MEPS based research every year and publish it in a working paper on the BLS web.

PPI will get the Census weights in 2010 and begin calculating disease based price indexes in 2011. Use of MEPS data also being

considered32

Disease based price indexes and health care

reform

CPIs important in measuring whether or not health care reform lowered the out of pocket costs to consumers.

PPIs important in measuring the total costs of health care reform no matter the source of financing.

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Contact Information

Michael HorriganAssociate Commissioner

Office of Prices and Living Conditions

202-691-6960horrigan.michael@bls.gov

The CNSTAT FormulaePdit = Price of input service i used to treat disease d in period t.

Qdir = Quantity of input i used to treat disease d in period r.

When quantities are not updated:

When quantities are updated:

1

dit diri

dtdit dir

i

P QI

P Q

35

1

1

1 1 1

1 1 1

Jump from Q change Price change only

dit diri

dtdit dir

i

dit dir dit diri i

dit dir dit diri i

P QI

P Q

P Q P Q

P Q P Q

Example - Mental Illness

3636

Price of Office Visit = $200 in period 1; = $220 in period 2.Price of RX = $30 in period 1; = $33 in period 2.The price of all inputs increase 10%.

Quantity of Office Visits = 4 in period 1 ; = 1 in period 2.Quantity of RX = 0 in period 1 ; = 4 in period 2.

The price of all inputs are up 10%.

Disease Based Index:

,2 ,2 ,2 ,2 ,1 ,2 ,1 ,2 ,2 ,2 ,2 ,2

,1 ,1 ,1 ,1 ,1 ,1 ,1 ,1 ,1 ,2 ,1 ,2

220*1 33*4 200*1 30*4 220*1 33*4

200*4 30*0 200*4 30*0 200*1 30

doc doc RX RX doc doc RX RX doc doc RX RX

doc doc RX RX doc doc RX RX doc doc RX RX

P Q P Q P Q P Q P Q P Q

P Q P Q P Q P Q P Q P Q

*4.44 .4 1.10

Index = Input Effect Price Effect