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Decomposing Medical-Care Expenditure Growth Abe Dunn, Eli Liebman, and Adam Shapiro September 11th, 2014 The views expressed in this paper are solely those of the authors and not necessarily those of Bureau of Economic Analysis. www.bea.gov 1 Medical-Care Expenditures represents a large fraction of Personal Consumer Expenditures (PCE) www.bea.gov 2 Health spending and price research suggested by CNSTAT Reports ▪ ▪ At What Price? Recommendation 6-1: BLS should select about 15 to 40 diagnoses from the ICD (International Classification of Diseases), chosen randomly in proportion to their direct medical treatment expenditures and use information from retrospective claims databases to identify and quantify the inputs used in their treatment and to estimate their cost. Accounting for Health and Health Care Recommendation 3.4: The Bureau of Economic Analysis, working with academic researchers (and perhaps other agencies, such as the Centers for Medicare & Medicaid Services and other parts of the Department of Health and Human Services), should collaborate on work to move incrementally toward the goal of creating disease-based expenditure accounts by attempting a “proof of concept” prototype. Using a subgroup of the population with good data coverage, the prototype would attempt to demonstrate that dollars spent in the economy on medical care can be allocated into disease categories in a fashion that yields meaningful information. www.bea.gov 3 BEAs new satellite account will focus on medical care spending Example of a Health Account Inputs Medical Care Spending Market labor/capital Volunteer labor Outputs Health status Longevity Quality of life Time invested in own health Other consumption items Research and development Quality of environment Source: National Research Council. (2005). Beyond the Market: Designing Nonmarket Accounts for the United States. Panel to Study the Design of Nonmarket Accounts, K.G. Abraham and C. Mackie, eds. Committee on National Statistics, Division of Behavioral and Social Sciences and Education. Washington, DC: The National Academies Press. www.bea.gov 4 Contribution of our work is to redefine the output of the medical care sector For example Output = number of patients treated for cancer Expenditures = spending on the treatment of cancer Price = spending per patient treated for cancer This has implications for the accounts. www.bea.gov 5 Implication 1: Spending will be reported by disease classes www.bea.gov Table. Household Consumption Expenditures for Medical Care Millions of Dollars Current 2010 Goods Prescription drugs $ 288,480 Services $ Physician services $ 402,797 Paramedical services $ Home health care $ 76,998 Medical laboratories $ 32,625 Other professional medical services $ 151,024 Hospitals $ 770,481 Total* $ 1,722,406 Proposed by Disease 2010 Infectious and parasitic $ 27,965 Neoplasms $ 127,504 Endocrine $ 120,468 Blood $ 11,830 Mental illness $ 94,881 Nervous system $ 114,945 Circulatory system $ 246,756 Respiratory system $ 108,423 Digestive system $ 99,751 Genitourinary system $ 69,179 Complications of pregnancy $ 55,499 Skin $ 23,418 Musculoskeletal system $ 191,565 Congenital anomalies $ 14,853 Certain perinatal conditions $ 5,273 Injury and poisoning $ 130,932 Symptoms and ill-defined $ 258,344 Residual codes and unclassified $ 20,819 Total Disease $ 1,722,406 * not included - eyeglasses, other medical products, Nonprescription drugs, Therapeutic medical equipment, Nursing homes, and dental services 6 Implication 2: Redefining output also implies new price indexes. ▪ The new price indexes are the change in average expenditure per episode for each disease ▪ They reflect any shifts in services across industries that alter the cost of treating disease. www.bea.gov 7 Implication 2: Redefining output also implies new price indexes. ▪ The new price indexes are the change in average expenditure per episode for each disease ▪ They reflect any shifts in services across industries that alter the cost of treating disease. ▪ Disease-based indexes can rise slower than traditional service price indexes with shifts in treatments www.bea.gov 8 Implication 2: Redefining output also implies new price indexes. ▪ The new price indexes are the change in average expenditure per episode for each disease ▪ They reflect any shifts in services across industries that alter the cost of treating disease. ▪ Disease-based indexes can rise slower than traditional service price indexes with shifts in treatments ▪ With increases in utilization, disease-based indexes can rise faster than traditional price indexes www.bea.gov 9 Selected BEA and BLS research “Producing disease-based price indexes,” Bradley, Cardenas, Ginsburg, Rozental, Velez, Monthly Labor Review, 2010 “Alternative Price Indexes for Medical Care: Evidence from the MEPS Survey,” Aizcorbe, Bradley (BLS), Herauf, Kane, Liebman, Pack, Rozental (BLS), BEA Working Paper, 2011 “Changing Mix of Medical Care Services: Stylized Facts and Implications for Price Indexes,” Aizcorbe and Nestoriak, Journal of Health Economics, May 2011 “Household Consumption Expenditures for Medical Care: An Alternate Presentation,” Aizcorbe, Liebman, Cutler, and Rosen, Survey of Current Business, June 2012 “Feasible methods to estimate disease based price indexes,” Bradley, Journal of Health Economics, 2013 Calculating Disease-Based Medical Care Expenditure Indexes for Medicare Beneficiaries: A Comparison of Method and Data Choices, Hall and Highfill, BEA Working Paper, 2014 Decomposing Medical-Care Expenditure Growth, Dunn, Liebman, Shapiro, BEA Working Paper Defining Disease Episodes and the Effects on the Components of Expenditure Growth, Dunn, Liebman, Rittmueller, and Shapiro, BEA Working Paper, 2014 www.bea.gov 10 Decomposing Medical-Care Expenditure Growth by Dunn, Liebman, and Shapiro ▪ What are the sources of expenditure growth in the private health care market from 2003-07? ▪ Privately insured health care – 60 percent more spending than Medicare (NHEA). ▪ Use large claims data to analyzes the sources of expenditure growth. www.bea.gov Expenditure Decomposition ▪ What are the sources of expenditure growth? Demographics Prevalence Expenditures per Episode www.bea.gov Service Prices Service Utilization Expenditure Decomposition Exp. Per Capita Demog. Shift Adj. Exp. Per Capita ECI – Expenditure Per Capita Index DECI – Demographically-adjusted Expenditure per Capita Index DEM – Demographic Component of Expenditure Growth www.bea.gov 13 Expenditure Decomposition Adj. Exp. Per Capita MCE Prevalence SPI SUI PREV – Treated Prevalence Index MCE – Medical Care Expenditure Index (Expenditures per Episode) SPI – Service Price Index www.bea.govSUI – Service Utilization Index 14 Data ▪ Commercially-insured patients from the MarketScan® Data from Truven Health. Over 4 million enrollees per year. Analyze years 2003-07. Process claims using ETG Symmetry grouper from Optum. Each enrollee in the database is: ▪ ▪ ▪ ▪ 1. Not in a capitated plan. 2. Has a drug benefit plan. 3. Included only if the individual is enrolled for the full year. www.bea.gov 15 Sample & Weights ▪ Sample Fixed MarketScan Data Contributor ▪ Weights 1. Weighted by region, age and sex to match changing population demographics. 2. Weighted by region, age, and sex, fixed demographics www.bea.gov 16 Summary Statistics Expenditure Enrollees Expenditure per Capita (Enrollee) Episodes Expenditure per Episode Percent Male Average Age < Age 17 Age 18 - Age 24 Age 25 - Age 34 Age 35 - Age 54 > Age 55 www.bea.gov 2003 2007 $471.5 Billion $611.6 Billion 180,578,000 182,530,000 $2,611 $3,350 489,330,264 539,528,197 $964 $1,134 49.5 49.6 32.3 32.9 27.3% 26.3% 9.6% 9.6% 14.7% 14.7% 36.2% 35.6% 12.2% 13.8% 17 Sources of Expenditure Growth ▪ Expenditures driven by service prices and prevalence. Utilization per episode is flat. ▪ After deflating these figures, growth is primarily driven by prevalence, not expenditures per episode (i.e. disease price). www.bea.gov Decomposition Decomposition of Aggregate Expenditure Growth, Nominal and Real 30% 25% 20% 15% 10% 5% 0% Nominal Deflated -5% www.bea.gov Demographic Shifts Treated Prevalence Service Price Index Service Utilization Index 19 Expenditure Growth Pattern Is Not Uniform Across Diseases. ▪ Within Disease Category Differences e.g. cardiology related conditions: Prevalence growth is high for many early-stage illnesses. i.e. hypertension, high cholesterol, obesity and diabetes. Prevalence growth is relatively low for late stage illnesses. i.e. ischemic heart disease. www.bea.gov Decomposition by Disease Category Disease Category (2003 Spending Share) Decomposition of Per Capita Expenditure Growth: Overall Expenditures and Selected Conditions Overall (100%) -1%3% Ortho. (16.6%) 3% Cardio. (12.2%) -8% 10% 12% 7% Gastro. (9.1%) 4% Gyneco. (7.1%) 2%1% Preventative (2.3%) -10% www.bea.gov 2% 14% 14% 4% 2% 15% 11% 17% 19% 0% 1% 29% Demographic Shifts10%Prevalence 0% 20% Service Prices 30% 14% 11% Service 40%Utilization50% 60% Decomposition by Disease Category Orthopedics & Rheumatology Cardiology Gastroenterology Gynecology Endocrinology Otolaryngology Neurology Psychiatry Pulmonology Dermatology Obstetrics Urology Hematology Hepatology Preventive & Administrative Ophthalmology Nephrology Infectious diseases Neonatology Isolated signs & symptoms Late effects, environmental trauma Chemical dependency Total www.bea.gov 2003 Expenditure per Capita $434 $317 $238 $185 $177 $165 $151 $124 $120 $118 $112 $96 $65 $61 $60 $43 $36 $35 $28 $19 $14 $13 $2,611 2007 Expenditure per Capita $579 $373 $317 $228 $248 $188 $201 $150 $151 $152 $140 $122 $86 $70 $99 $53 $50 $49 $40 $21 $18 $18 $3,350 2003 Share of Total Expenditure 16.6% 12.2% 9.1% 7.1% 6.8% 6.3% 5.8% 4.8% 4.6% 4.5% 4.3% 3.7% 2.5% 2.3% 2.3% 1.6% 1.4% 1.3% 1.1% 0.7% 0.5% 0.5% 100% Share of Expenditure Growth 19.6% 7.5% 10.6% 5.8% 9.5% 3.1% 6.7% 3.4% 4.2% 4.7% 3.7% 3.5% 2.8% 1.2% 5.2% 1.4% 1.9% 1.9% 1.6% 0.3% 0.6% 0.7% 100% ECI 1.33 1.18 1.33 1.23 1.40 1.14 1.33 1.20 1.26 1.29 1.25 1.27 1.32 1.15 1.64 1.25 1.39 1.41 1.43 1.12 1.30 1.42 1.28 Dem 1.03 1.07 1.04 1.02 1.05 1.00 1.03 1.04 1.00 1.02 0.99 1.05 1.04 1.03 1.02 1.06 1.06 1.03 1.12 1.01 1.02 1.00 1.03 2007 Indexes DECI PREV MCE 1.30 1.12 1.17 1.11 1.04 1.06 1.29 1.11 1.17 1.22 1.01 1.20 1.34 1.27 1.07 1.14 1.03 1.11 1.30 1.10 1.19 1.16 1.01 1.16 1.26 1.13 1.12 1.28 1.08 1.18 1.26 1.08 1.17 1.22 1.12 1.11 1.28 1.11 1.15 1.12 0.99 1.12 1.62 1.29 1.26 1.19 1.13 1.05 1.33 1.49 0.90 1.38 1.15 1.18 1.32 1.14 1.17 1.11 1.00 1.11 1.27 0.96 1.34 1.41 1.38 1.06 1.25 1.10 1.14 SPI 1.14 1.15 1.17 1.19 1.16 1.12 1.20 1.20 1.13 1.15 1.15 1.13 1.21 1.17 1.14 1.08 0.91 1.12 1.13 1.10 1.29 1.09 1.15 SUI 1.02 0.92 1.00 1.01 0.93 0.99 0.99 0.97 0.99 1.02 1.02 0.98 0.95 0.95 1.11 0.98 1.00 1.06 1.03 1.02 1.04 0.98 0.99 Cardiology Ischemic heart disease 1 Hypertension 1 Diabetes 1 Ischemic heart disease 2 Hyperlipidemia, other 1 www.bea.gov 2003 Expenditure per Capita 2007 Expenditure per Capita $55 $48 $43 $30 $26 $54 $64 $68 $32 $37 2007 Indexes ECI DEM DECI PREV MCE 0.98 1.07 0.91 0.95 0.96 1.33 1.06 1.27 1.14 1.11 1.58 1.09 1.48 1.28 1.16 1.07 1.08 0.99 1.09 0.91 1.43 1.08 1.35 1.29 1.05 SPI 1.14 1.13 1.17 1.09 1.16 SUI 0.86 1.01 1.01 0.84 0.95 Orthopedics and Rheumatology Joint degeneration, localized - back 1 Joint derangement - knee & lower leg 2 Joint degeneration, localized - knee & lower leg 1 Joint degeneration, localized - neck 1 Joint degeneration, localized - back 2 www.bea.gov 2003 Expenditure per Capita $42 $30 $25 $22 $18 2007 Expenditure Per Capita $56 $37 $43 $28 $26 2007 Indexes ECI DEM DECI PREV MCE 1.32 1.03 1.29 1.15 1.12 1.24 1.02 1.22 1.09 1.12 1.68 1.12 1.56 1.24 1.26 1.26 1.02 1.23 1.14 1.08 1.43 1.06 1.37 1.24 1.11 SPI 1.18 1.07 1.15 1.14 1.17 SUI 0.98 1.05 1.09 0.98 0.96 Gastroenterology Inflammation of esophagus 1 Gastroenterology diseases signs & symptoms 1 Non-malignant neoplasm of intestines & abdomen 1 Hernias, except hiatal 1 Appendicitis 1 www.bea.gov 2003 Expenditure per Capita 2007 Expenditure per Capita $27 $23 $20 $10 $9 $29 $33 $27 $12 $12 2007 Indexes ECI DEM DECI PREV MCE 1.09 1.02 1.07 1.06 1.01 1.41 1.03 1.39 1.16 1.20 1.34 1.08 1.26 1.16 1.08 1.19 1.03 1.16 1.02 1.14 1.41 0.99 1.42 1.15 1.24 SPI 1.12 1.15 1.08 1.19 1.20 SUI 0.92 1.05 1.02 0.96 1.02 Neoplasms Neoplasm of breast Neoplasm of pulmonary system Neoplasm of rectum or anus Neoplasm of prostate Neoplasm of skin, major All neoplasms www.bea.gov Malignant Non-Malignant Malignant Non-Malignant Malignant Non-Malignant Malignant Non-Malignant Malignant Non-Malignant Malignant Non-Malignant All other diseases 2003 Expenditure per Capita 2007 Expenditure per Capita $50 $11 $16 $1 $13 $2 $13 $4 $10 $15 $162 $107 $2,247 $77 $12 $21 $1 $21 $3 $20 $6 $14 $19 $240 $133 $2,856 2007 Indexes ECI DEM DECI PREV MCE 1.53 1.06 1.47 1.07 1.37 1.04 1.01 1.03 0.85 1.21 1.27 1.09 1.17 0.95 1.23 1.12 1.03 1.09 1.04 1.05 1.55 1.09 1.46 0.97 1.51 1.73 1.09 1.64 1.52 1.08 1.55 1.15 1.40 1.09 1.29 1.56 1.13 1.43 1.06 1.35 1.35 1.08 1.28 1.08 1.18 1.27 1.03 1.25 1.13 1.10 1.48 1.08 1.40 1.08 1.30 1.24 1.03 1.21 1.11 1.11 1.27 1.03 1.24 1.10 1.13 SPI 1.27 1.18 1.28 0.97 1.45 1.06 1.17 1.15 1.11 1.11 1.25 1.15 1.15 SUI 1.33 1.03 1.40 1.08 0.99 1.04 1.07 1.19 1.04 1.00 1.05 0.98 0.99 Conclusion ▪ Over the 2003-07 period for the commercial sector: Expenditures primarily driven by service price growth, but service price growth does not greatly exceed overall inflation. Treated prevalence growth plays an important role in real growth in output. Tends in the components of expenditure growth are disease-specific. www.bea.gov BEA Health Account ▪ Release survey article of Health Care Satellite Account around December of this year. http://www.bea.gov/national/health_care_satellite _account.htm ▪ Account will incorporate expenditure estimates from full population, not just commercial sector. ▪ Account will report estimates over a longer horizon 2000 to 2010. www.bea.gov 28 Future Satellite Account Work ▪ ▪ ▪ ▪ ▪ ▪ New release in 2015 with 2011 and 2012 estimates Creating a longer time series and current estimates Evaluate the impact on Industry accounts Evaluate the impact Income accounts Evaluate Quality Adjustment Continue to evaluate data sources – MEPS, MarketScan®, Medicare, along with Medicaid and others. ▪ Integrate/incorporate/compare BEA/HSA with BLS PPI or CPI disease-based indexes (once created) www.bea.gov 29