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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.

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Medical-Care Expenditures represents a large fraction of Personal Consumer Expenditures (PCE)

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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 CareRecommendation 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.

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BEAs new satellite account will focus on medical care spending

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.

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Example of a Health Account

Inputs Outputs

Medical Care Spending Health status

Market labor/capital Longevity

Volunteer labor Quality of life

Time invested in own health

Other consumption items

Research and development

Quality of environment

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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.

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Implication 1: Spending will be reported by disease classes

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

Table. Household Consumption Expenditures for Medical Care Millions of Dollars

* not included - eyeglasses, other medical products, Nonprescription drugs, Therapeutic medical equipment, Nursing homes, and dental services

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Implication 2: Redefining output also implies new price indexes.

▪ The new price indexesare 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.

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▪ Disease-based indexes can riseslower than traditional serviceprice indexes with shifts in treatments

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▪ Disease-based indexes can riseslower than traditional serviceprice indexes with shifts in treatments

▪ With increases in utilization, disease-based indexes can rise faster than traditional price indexes

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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

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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.

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Expenditure Decomposition

▪ What are the sources of expenditure growth?

Demographics

Prevalence

Expenditures per Episode Service Prices Service Utilization

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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

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Prevalence MCE

SPI SUI

PREV – Treated Prevalence Index

MCE – Medical Care Expenditure Index (Expenditures per Episode)

SPI – Service Price Index

SUI – Service Utilization Index

Adj. Exp. Per Capita

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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.

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Sample & Weights

▪Sample Fixed MarketScan Data Contributor

▪Weights1. Weighted by region, age and sex to

match changing population demographics.

2. Weighted by region, age, and sex, fixed demographics

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Summary Statistics

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2003 2007Expenditure $471.5 Billion $611.6 BillionEnrollees 180,578,000 182,530,000 Expenditure per Capita (Enrollee) $2,611 $3,350Episodes 489,330,264 539,528,197 Expenditure per Episode $964 $1,134Percent Male 49.5 49.6Average Age 32.3 32.9< Age 17 27.3% 26.3%Age 18 - Age 24 9.6% 9.6%Age 25 - Age 34 14.7% 14.7%Age 35 - Age 54 36.2% 35.6%> Age 55 12.2% 13.8%

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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).

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Decomposition

Decomposition of Aggregate Expenditure Growth, Nominal and Real

-5%

0%

5%

10%

15%

20%

25%

30%

Nominal Deflated

Demographic Shifts Treated Prevalence Service Price Index Service Utilization Index

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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.

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Decomposition by Disease Category

Decomposition of Per Capita Expenditure Growth: Overall Expenditures and Selected Conditions

2%

2%

4%

7%

3%

3%

29%

1%

11%

4%

12%

10%

14%

19%

17%

15%

14%

14%

11%

1%

0%

-8%

2%

-1%

-10% 0% 10% 20% 30% 40% 50% 60%

Preventative (2.3%)

Gyneco. (7.1%)

Gastro. (9.1%)

Cardio. (12.2%)

Ortho. (16.6%)

Overall (100%)

Dis

ease

Cat

ego

ry (

2003

Sp

end

ing

Sh

are)

Demographic Shifts Prevalence Service Prices Service Utilization

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2003 Expenditure

2007 Expenditure

2003 Share of Total

Share of Expenditure

per Capita per Capita Expenditure Growth ECI Dem DECI PREV MCE SPI SUIOrthopedics & Rheumatology $434 $579 16.6% 19.6% 1.33 1.03 1.30 1.12 1.17 1.14 1.02

Cardiology $317 $373 12.2% 7.5% 1.18 1.07 1.11 1.04 1.06 1.15 0.92Gastroenterology $238 $317 9.1% 10.6% 1.33 1.04 1.29 1.11 1.17 1.17 1.00

Gynecology $185 $228 7.1% 5.8% 1.23 1.02 1.22 1.01 1.20 1.19 1.01Endocrinology $177 $248 6.8% 9.5% 1.40 1.05 1.34 1.27 1.07 1.16 0.93

Otolaryngology $165 $188 6.3% 3.1% 1.14 1.00 1.14 1.03 1.11 1.12 0.99Neurology $151 $201 5.8% 6.7% 1.33 1.03 1.30 1.10 1.19 1.20 0.99Psychiatry $124 $150 4.8% 3.4% 1.20 1.04 1.16 1.01 1.16 1.20 0.97

Pulmonology $120 $151 4.6% 4.2% 1.26 1.00 1.26 1.13 1.12 1.13 0.99Dermatology $118 $152 4.5% 4.7% 1.29 1.02 1.28 1.08 1.18 1.15 1.02

Obstetrics $112 $140 4.3% 3.7% 1.25 0.99 1.26 1.08 1.17 1.15 1.02Urology $96 $122 3.7% 3.5% 1.27 1.05 1.22 1.12 1.11 1.13 0.98

Hematology $65 $86 2.5% 2.8% 1.32 1.04 1.28 1.11 1.15 1.21 0.95Hepatology $61 $70 2.3% 1.2% 1.15 1.03 1.12 0.99 1.12 1.17 0.95

Preventive & Administrative $60 $99 2.3% 5.2% 1.64 1.02 1.62 1.29 1.26 1.14 1.11Ophthalmology $43 $53 1.6% 1.4% 1.25 1.06 1.19 1.13 1.05 1.08 0.98

Nephrology $36 $50 1.4% 1.9% 1.39 1.06 1.33 1.49 0.90 0.91 1.00Infectious diseases $35 $49 1.3% 1.9% 1.41 1.03 1.38 1.15 1.18 1.12 1.06

Neonatology $28 $40 1.1% 1.6% 1.43 1.12 1.32 1.14 1.17 1.13 1.03Isolated signs & symptoms $19 $21 0.7% 0.3% 1.12 1.01 1.11 1.00 1.11 1.10 1.02

Late effects, environmental trauma $14 $18 0.5% 0.6% 1.30 1.02 1.27 0.96 1.34 1.29 1.04Chemical dependency $13 $18 0.5% 0.7% 1.42 1.00 1.41 1.38 1.06 1.09 0.98

Total $2,611 $3,350 100% 100% 1.28 1.03 1.25 1.10 1.14 1.15 0.99

2007 Indexes

Decomposition by Disease Category

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Cardiology

2003 Expenditure

2007 Expenditure

per Capita per Capita ECI DEM DECI PREV MCE SPI SUIIschemic heart disease 1 $55 $54 0.98 1.07 0.91 0.95 0.96 1.14 0.86

Hypertension 1 $48 $64 1.33 1.06 1.27 1.14 1.11 1.13 1.01Diabetes 1 $43 $68 1.58 1.09 1.48 1.28 1.16 1.17 1.01

Ischemic heart disease 2 $30 $32 1.07 1.08 0.99 1.09 0.91 1.09 0.84Hyperlipidemia, other 1 $26 $37 1.43 1.08 1.35 1.29 1.05 1.16 0.95

2007 Indexes

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Orthopedics and Rheumatology

ECI DEM DECI PREV MCE SPI SUIJoint degeneration, localized - back 1 $42 $56 1.32 1.03 1.29 1.15 1.12 1.18 0.98

Joint derangement - knee & lower leg 2 $30 $37 1.24 1.02 1.22 1.09 1.12 1.07 1.05Joint degeneration, localized - knee & lower leg 1 $25 $43 1.68 1.12 1.56 1.24 1.26 1.15 1.09

Joint degeneration, localized - neck 1 $22 $28 1.26 1.02 1.23 1.14 1.08 1.14 0.98Joint degeneration, localized - back 2 $18 $26 1.43 1.06 1.37 1.24 1.11 1.17 0.96

2007 Indexes2007 Expenditure Per Capita

2003 Expenditure per Capita

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Gastroenterology

2003 Expenditure

2007 Expenditure

per Capita per Capita ECI DEM DECI PREV MCE SPI SUIInflammation of esophagus 1 $27 $29 1.09 1.02 1.07 1.06 1.01 1.12 0.92

Gastroenterology diseases signs & symptoms 1 $23 $33 1.41 1.03 1.39 1.16 1.20 1.15 1.05Non-malignant neoplasm of intestines & abdomen 1 $20 $27 1.34 1.08 1.26 1.16 1.08 1.08 1.02

Hernias, except hiatal 1 $10 $12 1.19 1.03 1.16 1.02 1.14 1.19 0.96Appendicitis 1 $9 $12 1.41 0.99 1.42 1.15 1.24 1.20 1.02

2007 Indexes

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Neoplasms

2003 Expenditure

2007 Expenditure

per Capita per Capita ECI DEM DECI PREV MCE SPI SUIMalignant $50 $77 1.53 1.06 1.47 1.07 1.37 1.27 1.33

Non-Malignant $11 $12 1.04 1.01 1.03 0.85 1.21 1.18 1.03Malignant $16 $21 1.27 1.09 1.17 0.95 1.23 1.28 1.40





Non-Malignant $107 $133 1.24 1.03 1.21 1.11 1.11 1.15 0.98All other diseases $2,247 $2,856 1.27 1.03 1.24 1.10 1.13 1.15 0.99

Neoplasm of prostate

Neoplasm of skin, major

All neoplasms

2007 Indexes

Neoplasm of breast

Neoplasm of pulmonary system

Neoplasm of rectum or anus

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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.

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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.

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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)

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