Unbiased Analysis of Today's Healthcare Issues

Expenditure vs. Price Index: Part II

Written By: Jason Shafrin - Nov• 27•12

Health care prices have risen dramatically in recent years so that health care spending makes up more than 16% of the U.S. economy.  Howmuch of this increase is due to the increase in the price of medical care?  In a previous article, I noted that there are two main ways to measure price increases for medical services: (i) the price of a specific medical good or service, or (ii) the price to treat a specific disease.  Aizcorbe and Nestoriak (2011) describe how to construct these indices in more detail.

The Bureau of Labor Statistics (BLS) uses the former, also known as as Service Price Index (SPI).  What would be the impact on estimated medical prices if BLS instead measured changes in medical prices using the latter specification, known as a Medical Care Expenditure (MCE) Index?

Dunn et al. (2012) use a convenience sample of commercially insured individuals to answer this question.  Specifically, the authors use claims data from enrollees with employer-provided insurance from the MarketScan database for the years 2003 to 2007.  [The Aizcorbe and Nestoriak study, on the other hand, used commercially insured data from Pharmetrics.]  To measure the cost to treat a disease, the authors use the ETG episode grouper from Symmetry which groups an individuals claims into episodes of care related to specific diseases.

The MCE exhibits slower growth than the SPI: the difference between the two indexes is notable,
with the SPI growing 18.9 percent over the 3-year period and the MCE growing at a markedly slower 15.3 percent. There is a difference of about 0.7 percentage points between the compound annual growth rates [CAGR], with the MCE CAGR being 3.0 percentage points and the SPI CAGR being 3.7 percentage points.

The main difference between the SPI and MCE is whether patients received more services to treat a given disease. When utilization of medical services per disease increases, the SPI grows faster than the MCE; when utilizaiton of medical services to treat a given disease decreases, the SPI grows slower than the MCE. The authors break down the SPI/MCE by condition.  Note that a key difference between the SPI calculated in this study and the one calculated by the BLS is that the SPI that Dunn et al. use is a price per encounter, whereas the BLS price index is a price per service.

For most conditions expenditures per patient did not grow as fast as they would have if patients had received the same bundle of services in 2005 that patients received in 2003. There are three exceptions in the MarketScan data: (1) ophthalmology, (2) obstetrics, and (3) orthopedics and rheumatology.


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