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Changing Mix of Medical Care Services: Stylized Facts and Implications for Price Indexes

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  • Ana Aizcorbe
  • Nicole Nestoriak

    (Bureau of Economic Analysis)

Abstract

The utilization of health care services has undergone several important shifts in recent years that have implications for the cost of medical care. We empirically document the presence of these shifts for a broad list of medical conditions and assess the implications for price indexes. Following the earlier literature, we compare the growth of two price measures: one that tracks expenditures for the services actually provided to treat conditions and another that holds the mix of those services fixed over time. Using retrospective claims data for a sample of commercially-insured patients, we find that, on average, expenditures to treat diseases rose 11% from 2003:1 to 2005:4 and would have risen even faster, 18%, had the mix of services remained fixed at the 2003:1 levels. This suggests that fixed-basket price indexes, as are used in the official statistics, could overstate true price growth significantly.

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Bibliographic Info

Paper provided by Bureau of Economic Analysis in its series BEA Working Papers with number 0064.

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Date of creation: Aug 2010
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Handle: RePEc:bea:wpaper:0064

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References

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  1. Joseph P. Newhouse, 1992. "Medical Care Costs: How Much Welfare Loss?," Journal of Economic Perspectives, American Economic Association, vol. 6(3), pages 3-21, Summer.
  2. Richard G. Frank & Thomas G. McGuire & Sharon-Lise Normand, 2006. "Cost-Offsets of New Medications for Treatment of Schizophrenia," NBER Working Papers 12643, National Bureau of Economic Research, Inc.
  3. Gregory S. Crawford & Matthew Shum, 2005. "Uncertainty and Learning in Pharmaceutical Demand," Econometrica, Econometric Society, vol. 73(4), pages 1137-1173, 07.
  4. David M. Cutler & Mark B. McClellan & Joseph P. Newhouse & Dahlia K. Remler, 2001. "Pricing Heart Attack Treatments," NBER Chapters, in: Medical Care Output and Productivity, pages 305-362 National Bureau of Economic Research, Inc.
  5. David M. Cutler & Mark McClellan & Joseph P. Newhouse & Dahlia Remler, 1998. "Are Medical Prices Declining? Evidence From Heart Attack Treatments," The Quarterly Journal of Economics, MIT Press, vol. 113(4), pages 991-1024, November.
  6. Ernst R. Berndt & David M. Cutler & Richard G. Frank & Zvi Griliches & Joseph P. Newhouse & Jack E. Triplett, 1998. "Price Indexes for Medical Care Goods and Services: An Overview of Measurement Issues," Harvard Institute of Economic Research Working Papers 1851, Harvard - Institute of Economic Research.
  7. Xue Song & William D. Marder & Robert Houchens & Jonathan E. Conklin & Ralph Bradley, 2009. "Can A Disease-Based Price Index Improve the Estimation of the Medical Consumer Price Index?," NBER Chapters, in: Price Index Concepts and Measurement, pages 329-368 National Bureau of Economic Research, Inc.
  8. Ana Aizcorbe & Eli Liebman & Sarah Pack & David M. Cutler & Michael E. Chernew & Allison B. Rosen, 2010. "Measuring Health Care Costs of Individuals with Employer-Sponsored Health Insurance in the U.S.: A Comparison of Survey and Claims Data," BEA Working Papers 0066, Bureau of Economic Analysis.
  9. Irving Shapiro & Matthew D. Shapiro & David Wilcox, 2001. "Measuring the value of Cataract Surgery," NBER Chapters, in: Medical Care Output and Productivity, pages 411-438 National Bureau of Economic Research, Inc.
  10. Duggan, Mark, 2005. "Do new prescription drugs pay for themselves?: The case of second-generation antipsychotics," Journal of Health Economics, Elsevier, vol. 24(1), pages 1-31, January.
  11. Frank, Richard G. & Berndt, Ernst R. & Busch, Alisa B. & Lehman, Anthony F., 2004. "Quality-constant "prices" for the ongoing treatment of schizophrenia: an exploratory study," The Quarterly Review of Economics and Finance, Elsevier, vol. 44(3), pages 390-409, July.
  12. Ernst R. Berndt & Susan Busch & Richard Frank, 2001. "Treatment Price Indexes for Acute Phase Major Depression," NBER Chapters, in: Medical Care Output and Productivity, pages 463-508 National Bureau of Economic Research, Inc.
  13. F. M. Fisher & K. Shell, 1970. "The Pure Theory of the National-Output Deflator," Working papers 59, Massachusetts Institute of Technology (MIT), Department of Economics.
  14. Berndt, Ernst R. & Cutler, David M. & Frank, Richard G. & Griliches, Zvi & Newhouse, Joseph P. & Triplett, Jack E., 2000. "Medical care prices and output," Handbook of Health Economics, in: A. J. Culyer & J. P. Newhouse (ed.), Handbook of Health Economics, edition 1, volume 1, chapter 3, pages 119-180 Elsevier.
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Citations

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Cited by:
  1. Dunn, Abe & Shapiro, Adam Hale & Liebman, Eli, 2013. "Geographic variation in commercial medical-care expenditures: A framework for decomposing price and utilization," Journal of Health Economics, Elsevier, vol. 32(6), pages 1153-1165.
  2. Bradley, Ralph, 2013. "Feasible methods to estimate disease based price indexes," Journal of Health Economics, Elsevier, vol. 32(3), pages 504-514.
  3. Abe Dunn, 2014. "Health Insurance and the Demand for Medical Care: Instrumental Variable Estimates Using Health Insurer Claims Data," BEA Working Papers 0107, Bureau of Economic Analysis.
  4. Abe Dunn & Eli Liebman & Adam Hale Shapiro, 2013. "Developing a Framework for Decomposing Medical-Care Expenditure Growth: Exploring Issues of Representativeness," NBER Chapters, in: Measuring Economic Sustainability and Progress National Bureau of Economic Research, Inc.
  5. Abe C. Dunn & Adam Shapiro & Eli Liebman, 2011. "Geographic Variation in Commercial Medical Care Expenditures: A Decomposition Between Price and Utilization," BEA Working Papers 0075, Bureau of Economic Analysis.
  6. Abe Dunn & Adam Hale Shapiro, 2012. "Physician Market Power and Medical-Care Expenditures," BEA Working Papers 0084, Bureau of Economic Analysis.
  7. Abe Dunn & Eli Liebman & Lindsey Rittmueller & Adam Shapiro, 2014. "Defining Disease Episodes and the Effects on the Components of Expenditure Growth," BEA Working Papers 0108, Bureau of Economic Analysis.
  8. Abe Dunn, 2012. "Drug Innovations and Welfare Measures Computed from Market Demand: The Case of Anti-cholesterol Drugs," American Economic Journal: Applied Economics, American Economic Association, vol. 4(3), pages 167-89, July.
  9. Wulong Gu & St├ęphane Morin, 2013. "Experimental Measures of Output and Productivity in the Canadian Hospital Sector, 2002 to 2010," NBER Chapters, in: Measuring Economic Sustainability and Progress National Bureau of Economic Research, Inc.
  10. Abe Dunn & Eli Liebman & Adam Hale Shapiro, 2012. "Decomposing Medical-Care Expenditure Growth," BEA Working Papers 0088, Bureau of Economic Analysis.
  11. Allison B. Rosen & Eli Liebman & Ana Aizcorbe & David M. Cutler, 2012. "Comparing Commercial Systems for Characterizing Episodes of Care," BEA Working Papers 0085, Bureau of Economic Analysis.
  12. Martha A. Starr & R. Forrest McCluer, 2014. "Prices and Quantities in Health Care Antitrust Damages," Working Papers 2014-03, American University, Department of Economics.
  13. Abe Dunn & Eli Liebman & Adam Hale Shapiro, 2012. "Implications of Utilization Shifts on Medical-Care Price Measurement," BEA Working Papers 0087, Bureau of Economic Analysis.
  14. Ana Aizcorbe & Ralph Bradley & Ryan Greenaway-McGrevy & Brad Herauf & Richard Kane & Eli Liebman & Sarah Pack & Lyubov Rozental, 2011. "Alternative Price Indexes for Medical Care: Evidence from the MEPS Survey," BEA Working Papers 0069, Bureau of Economic Analysis.

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