Strategies for a BEA Satellite Health Care Account Summary of a Workshop (2009) / Chapter Skim
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3 Price Indexes: Calculating Real Medical Care GDP
3 Price Indexes: Calculating Real Medical Care GDP
Pages 30-62
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From page 30... ...
involves parsing out nominal expenditures in a way that is meaningful and conducive to measuring prices. BEA is already in the business of developing price indexes for the purpose of calculating real levels of economic activity, on an industry by industry basis, for the national accounts; this responsibility is particularly demanding for the medical sector in which third-party payments, and the fact that transactions do not occur in textbook competitive markets, confound price measurement.
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From page 31... ...
In this context, Aizcorbe described the most important problem with producer price indexes for purposes of the satellite account envisioned by BEA: they do not identify the medical care good or service that is sought by the consumer -- which most think should be the treatment of a particular disease or condition. She added that health economists have developed the conceptual tools that are needed to remedy the situation, and that putting these approaches into practice is something that BEA would be working on right away.
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From page 32... ...
For its satellite health care account, BEA proposes to take the system-wide spending over some period of time in a treatment (such as for depression) , regardless of treatment mode, and divide it by the number of patients treated.
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From page 33... ...
Under present BLS procedures for cataracts -- a case that was cited several times throughout the day -- if the surgeries taking place in a hospital are sampled, then one set of price indexes would be generated for that; if surgeries shift to a clinic, then another set of price indexes would be obtained for that. If people switch from the more expensive hospital surgery to a less expensive clinic surgery, and if quality does not suffer, the ideal price index (from the perspective of the patient)
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From page 34... ...
So in the population aging example, as people start spending less on drugs, it would be reflected as a price drop, not as a drop in quantity, which is exactly what is wanted for the national accounts. In summary, the main reasons why BEA feels it needs to construct deflators differently from what is currently being provided by BLS in its Producer Price Index (PPI)
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From page 35... ...
Once BEA begins deflating medical care spending by consumers using a new price index, the industry-side calculations must be revisited, as real spending on inputs in the production of medical care must equal real spending on final medical care goods and services. If the deflators on the spending side are wrong, it must be the case that the industry deflators are also wrong.
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From page 36... ...
The real value added from the other providers is unchanged, which is to be expected, whereas there is an increase in the real value added for primary caregivers. This, he said, can be interpreted as resulting from the coordinating efforts that this newly defined primary caregiving industry is providing.
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From page 37... ...
Fraumeni described the new model, which reroutes the way that expenditures flow through the national accounts, as essentially involving a "fake billing." The reason is that the billing does not come entirely from the primary caregiver, and it has no impact in nominal dollar value added or expenditures. Sherry Glied agreed, noting that, even though integrated systems with gatekeepers exist in the real world (e.g., HMOs)
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From page 38... ...
–($80/1.07) Other providers $74 = $80/1.07 $74 = $80/1.07 NOTE: Real value added computed through "double deflation." In the proposed framework, BEA would use the disease-based price index, which, in this example, increases by a slower growth rate relative to the PPI, which is consistent with some of the initial work done by BEA.
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From page 39... ...
The output of the primary caregiver industry is now the value added, or $20, plus the intermediate pur chases it is making from the other providers, $80. Dividing this total by the new disease-based price index, hypothetically set here at 1.05, then subtracting the real value of intermediate inputs (the nominal, $80, divided by the relevant PPI, 1.07)
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From page 40... ...
This level of detail underlies the accounts, but the numbers published by BEA are for the health care industry, which is the aggregation of the subindustries -- the hospitals, the doctors' offices, and the rest -- for which data are supplied by the Census Bureau and BLS. Triplett also suggested that BEA will have the problem that price indexes for the subindustries will not equal those for the aggregate level -- there will need to be a reallocation term.
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From page 41... ...
3.3. Tracking Quality Change of Medical Goods and Services In a world of ideal measurement, BEA's satellite health care account would be deflated using quality-adjusted price indexes, as is already done for the most methodologically evolved components of the NIPAs.
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From page 42... ...
Shapiro views this as correct if the goal is to measure real prices for purposes of deflation of the national accounts. Next, Shapiro asked how this type of price index construction might be conducted on a larger scale than has been done to date in studies by health economists, which have typically focused on treatment of one specific disease.
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From page 43... ...
But those, Shapiro agreed, are two steps that could be worked out in sequence, as BEA has proposed. In her comments, Barbara Fraumeni suggested that BEA also ramp up documentation of plans for its satellite health care account, specifically about possible q uality adjustment to their price and quantity estimates, and a defense of their view that the task is separable from the disease-based expenditure allocation work.
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From page 44... ...
He said that how to begin measuring quality improvements, whether they occur in large discontinuous jumps or incrementally, was the key question for which his agency would need help from the assembled expertise at the workshop. Landefeld then asked about the effect of including quality adjustment, going from a conventional price index to the proposed version needed for the satellite account.
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From page 45... ...
The fact that some version of the national health accounts could be issued on an annual or quarterly basis creates extra possibilities that should be exploited. CPI Medical Care Price Indexes The workshop sessions covering initiatives to advance medical care price indexes informed questions about how and in what ways BEA will be able to draw from BLS sources to deflate nominal expenditures for estimating real GDP for the sector.
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From page 46... ...
For this, weighted CPI data for existing categories -- office visits, hospitals, pharmaceuticals, etc. -- were used to generate monthly price growth estimates. The weights in MEPS are updated annually for all inputs used in each disease treatment.
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From page 47... ...
When the annual quantity updates are performed, the price index growth declines to 7 percent. Bradley noted that mental disorders is an extreme example -- a case in which the substitution effect is pronounced.
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From page 48... ...
For example, currently, the unit of measurement for office visits is the visit itself; however, it should be possible to take advantage of data fields in MEPS indicating in more detail the types of services that are provided, such as an MRI, an X-ray or other things, and this may lead to better measurement of quantity and possibly quality. PPI Research Plans for Medical Care Price Indexes Bonnie Murphy presented the BLS plans to develop a "multi-industry price index structured by disease." At the moment, these plans are very much still in the research phase.
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From page 49... ...
This research project is in the public comment phase right now; it is possible that, if the feedback on the concept is positive, a new method of quality adjustment for the hospital index could be implemented very soon. The medical price indexes in the PPI have to be flexible to meet a range of user needs; for example, the industry or provider-based indexes have been needed by BEA for industry-based deflators.
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From page 50... ...
Murphy provided an example to illustrate how the new price index would work. She returned to the example of an eye surgery that moves from an in-hospital setting to a physician's office, and that is now performed at a lower cost.
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From page 51... ...
• The PPI will publish only disease categories with sufficient item data cov erage. The PPI cannot show price change for items in the alternative price index at least until additional economic census data become available.
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From page 52... ...
As noted above, for many years, the unit of measurement for BLS price indexes were things like the cost of a day in a hospital. The PPI's advance was to move toward the episodes-of-treatment concept, in which a diagnosis for in-hospital treatments would be priced out initially and then followed.
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From page 53... ...
The error arising from the direct comparison depends on the magnitude and direction of the quality change since all of it has been incorrectly been called a price change. The linking method is more complicated because the price change is implicitly assigned from the things that changed (it is not true that the linking method implies the exact opposite of the direct comparison method -- that is, that all quality change is ignored)
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From page 54... ...
If outcome measures were available to allow quality adjustment, that could also be done across provider classes. Returning to the cataract example, if BLS knew that outcomes from surgery in the outpatient and inpatient treatments were the same, they could make this direct comparison.
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From page 55... ...
Thus, if a price index is being used that tracks the older standard dosage form but does not pick up the delayed-release version that is in fact becoming the norm in the market, it will overestimate the rate of price inflation, since it includes the formulation that is no longer being used very much in the market. When the market baskets are updated, this will be picked up but, in some cases, the delays are significant.
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From page 56... ...
Mark McClellan, of the Brookings Institution and formerly of CMS and the Food and Drug Administration, spoke about measuring treatment outcome in this context. Among participants, there seemed to be complete agreement that quality adjustment of price indexes for the satellite health care accounts is extremely important and also that it is very hard to do.
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From page 57... ...
Also, there are few standard quality or outcome measures established for many aspects of health care. The trend has been to start with narrow pieces of the picture -- such as a look at a specific disease -- and try to expand that over time as data and technical expertise get better.
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From page 58... ...
CMS's Hospital Compare database is another example of how this work on quality measurement -- and not only processes of care, but also outcomes and satisfaction measures -- is progressing. The Hospital Compare site was implemented several years ago; since then it has expanded and now includes several outcome measures.
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From page 59... ...
Most of them are in the form of quality alliances or hospital quality alliances; these are instrumental in creating a consensus behind the measures of care that are used in such systems as Hospital Compare. One of these is a group called AQA, formerly Ambulatory Care Quality Alliance, which is concerned mainly about physician and ambulatory care quality measurement and is behind some of the efforts by Medicare and private payers to put more emphasis on quality and payment reporting.
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From page 60... ...
3.6. Data Needs for Price Measurement, Tracking Outcomes, and Quality Adjustment Mark McClellan's presentation also touched on some overarching data issues for measuring quality change; many of these parallel points were made during the discussions on medical care expenditures.
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From page 61... ...
But they are not going to provide a complete picture. The only other caution he added is that the quality adjustments could be significant; the measures on outcomes are going to get better over time, but they are almost certainly going to be different from year to year -- it is very hard to maintain consistency over longer time periods.
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From page 62... ...
The practical relevance of this to the work that is being done in health accounts and price indexes is still a way off. However, McClellan pointed out that some of these broader measures are in the early stages of being constructed and made available.
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