1. www.bea.gov 1 Decomposing Medical-Care Expenditure Growth Abe Dunn, Eli Liebman, and Adam Shapiro September 11 th, 2014 The views expressed in this paper are solely those of the authors and not necessarily those of Bureau of Economic Analysis.

2. www.bea.gov 2 Medical-Care Expenditures represents a large fraction of Personal Consumer Expenditures (PCE)

3. www.bea.gov 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. 3

4. www.bea.gov 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. 4 Example of a Health Account InputsOutputs 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

5. www.bea.gov 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. 5

6. www.bea.gov 6 Implication 1: Spending will be reported by disease classes

7. 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.

8. 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

9. www.bea.gov 9 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

10. www.bea.gov 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 10

11. www.bea.gov 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.

12. www.bea.gov Expenditure Decomposition ▪ What are the sources of expenditure growth?  Demographics  Prevalence  Expenditures per Episode  Service Prices  Service Utilization

13. www.bea.gov 13 Expenditure Decomposition Exp. Per Capita Demog. ShiftAdj. Exp. Per Capita ECI – Expenditure Per Capita Index DECI – Demographically-adjusted Expenditure per Capita Index DEM – Demographic Component of Expenditure Growth

14. www.bea.gov 14 Expenditure Decomposition 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

15. www.bea.gov 15 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.

16. www.bea.gov 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 16

17. www.bea.gov Summary Statistics 17

18. www.bea.gov 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).

19. www.bea.gov 19 Decomposition

20. www.bea.gov 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.

21. www.bea.gov Decomposition by Disease Category

22. www.bea.gov Decomposition by Disease Category

23. www.bea.gov Cardiology

24. www.bea.gov Orthopedics and Rheumatology

25. www.bea.gov Gastroenterology

26. www.bea.gov Neoplasms

27. www.bea.gov 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.

28. 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 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. 28

29. www.bea.gov 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) 29