The cost of care: new insights into healthcare spending growth
From the Bureau of Labor Statistics:
The Bureau of Labor Statistics (BLS) is celebrating the first anniversary of experimental disease-based price indexes, which adjust expenditures on diseases for inflation. Statistical agencies have long collected price information on medical procedures, drugs, equipment, and services, but the cost of treating a patient is typically some combination of these goods and services. Many users of the Federal Statistical System have asked that medical care spending be reported on a disease basis.1 Creating price indexes on a disease basis helps provide a greater understanding of the cost of care for a given condition...
Why report prices on a disease basis?
Although health care statistics that are generated on a goods and services basis (i.e., hospitals and doctor visits) are important, we can learn more information if we add statistics on a disease basis. To get the fullest understanding of our healthcare economy, we need both sets of indexes. Users need the additional information to understand how much Americans are getting for each healthcare dollar that we spend.
People use medical goods and services to heal from diseases and to avoid getting them in the first place. When medical spending price indexes are broken out by disease, we can tell how much spending is growing for each disease, how much of the medical spending growth for each disease comes from price growth (inflation), and how much comes from increased medical output. Further, we can break down medical output growth to tell how much of this growth comes from greater prevalence for that disease and how much comes from greater output per patient treated.
Because healthcare accounts for 17.8 percent of the economy in 2015, it is important to be well-informed about this sector.3 Our medical goods and services PPI and CPI price indexes still serve a very important purpose in telling us how prices are increasing for each medical good and service. Our disease-based price indexes are constructed using the same prices for medical goods and services. When disease-based price indexes are growing at a slower pace than the medical goods and services prices, we learn that medical decision makers are using these medical goods and services more efficiently.
An additional advantage to reporting price indexes by disease is that we are able to account for the impact of substitution across medical goods and services in the treatment of diseases. Over the past four decades, medical technology has changed, and along with those changes came a shift from inpatient hospitals to outpatient facilities. For example, in the 1970s, most cataract and hernia surgeries were done in an inpatient hospital; today, these surgeries are done in an outpatient facility. In addition, more surgical procedures, such as biopsies, are done in a simple office visit rather than at an outpatient center. And treatment by physicians and hospitals has been substituted by the use of pharmaceuticals for many diseases. For example, when treating depression today, there is less reliance on therapy visits and more on antidepressants than there was 30 years ago. Similarly, new pharmaceuticals on the market for the treatment of Hepatitis C and cancer have greatly reduced the need for inpatient hospital treatment of this disease. All these substitutions generate savings. Disease-based price indexes account for these cross-industry or cross-product substitutions, whereas the traditional goods and services indexes do not.
Why report prices on a disease basis?
Although health care statistics that are generated on a goods and services basis (i.e., hospitals and doctor visits) are important, we can learn more information if we add statistics on a disease basis. To get the fullest understanding of our healthcare economy, we need both sets of indexes. Users need the additional information to understand how much Americans are getting for each healthcare dollar that we spend.
People use medical goods and services to heal from diseases and to avoid getting them in the first place. When medical spending price indexes are broken out by disease, we can tell how much spending is growing for each disease, how much of the medical spending growth for each disease comes from price growth (inflation), and how much comes from increased medical output. Further, we can break down medical output growth to tell how much of this growth comes from greater prevalence for that disease and how much comes from greater output per patient treated.
Because healthcare accounts for 17.8 percent of the economy in 2015, it is important to be well-informed about this sector.3 Our medical goods and services PPI and CPI price indexes still serve a very important purpose in telling us how prices are increasing for each medical good and service. Our disease-based price indexes are constructed using the same prices for medical goods and services. When disease-based price indexes are growing at a slower pace than the medical goods and services prices, we learn that medical decision makers are using these medical goods and services more efficiently.
An additional advantage to reporting price indexes by disease is that we are able to account for the impact of substitution across medical goods and services in the treatment of diseases. Over the past four decades, medical technology has changed, and along with those changes came a shift from inpatient hospitals to outpatient facilities. For example, in the 1970s, most cataract and hernia surgeries were done in an inpatient hospital; today, these surgeries are done in an outpatient facility. In addition, more surgical procedures, such as biopsies, are done in a simple office visit rather than at an outpatient center. And treatment by physicians and hospitals has been substituted by the use of pharmaceuticals for many diseases. For example, when treating depression today, there is less reliance on therapy visits and more on antidepressants than there was 30 years ago. Similarly, new pharmaceuticals on the market for the treatment of Hepatitis C and cancer have greatly reduced the need for inpatient hospital treatment of this disease. All these substitutions generate savings. Disease-based price indexes account for these cross-industry or cross-product substitutions, whereas the traditional goods and services indexes do not.
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