1. Introducing the New BEA Health Care Satellite Account Abe Dunn, Lindsey Rittmueller, and Bryn Whitmire SEM Conference, Paris 24 July 2015

2. bea.gov Health care is a large and increasing share of GDP 2 17.4%

3. bea.gov Health Care Satellite Account (HCSA)  The goal of the satellite account is to improve our understanding of health care spending in the U.S. by developing disease-based statistics  Development advocated by many health economic experts  Scitovsky (1964) “An Index of the Cost of Medical Care – A Proposed New Approach”  Cutler, McClellan, Newhouse and Remler (1998) “Are Medical Prices Declining? Evidence from Heart Attack Treatments”  Frank, Berndt, Busch (1999) “Price Indexes for the Treatment of Depression”  Two reports of the National Academy of Sciences’ Committee on National Statistics 3

4. bea.gov Contribution of our work is to redefine the output of the health care sector For example  Output = number of patients treated for breast cancer  Expenditures = spending on the treatment of breast cancer  Price = average spending per treated patient for breast cancer 4

5. bea.gov Implication 1: Health care spending will be reported by disease classes 5

6. bea.gov Implication 2: Redefining output also implies new price indexes  The new price indexes are the change in average expenditure per episode for each disease 6

7. bea.gov Implication 2: Redefining output also implies new price indexes  The new price indexes are the change in average expenditure per episode for each disease  Disease-based indexes can rise slower than traditional service price indexes with shifts in treatments 7

8. bea.gov Implication 2: Redefining output also implies new price indexes  The new price indexes are the change in average expenditure per episode for each disease  Disease-based indexes can rise slower than traditional service price indexes with shifts in treatments  Disease-based indexes can also rise faster than traditional service price indexes 8

9. bea.gov HCSA presents two alternatives covering the 2000-2012 period 1.“MEPS Account” – using Medical Expenditure Panel Survey (MEPS) 2.“Blended Account” – MEPS, MarketScan ® claims data, and Medicare claims data 9 www.bea.gov/scb/index.htm

10. bea.gov Key points  The Blended Account produces more stable and less volatile disease-based statistics 10

11. bea.gov “Big Data” Motivation – Disease-Based Price Indexes 11

12. bea.gov Key points  The Blended Account produces more stable and less volatile disease-based statistics  Improves our understanding of health care spending trends 12

13. bea.gov Key points  The Blended Account produces more stable and less volatile disease-based statistics  Improves our understanding of health care spending trends  Disease-based indexes better reflect the pricing of health care treatments and will allow for evaluation of quality change 13

14. bea.gov Organization  Methods  Data  Results  Next steps 14

15. bea.gov 15 Allocating expenditures across disease categories  Many potential strategies for disease allocation  No consensus on “best” method  Currently applies a simple method with widespread use:  Apply a primary diagnosis approach using the Clinical Classification Software (CCS) (263 categories)  Uses “person-based” approach when primary diagnosis approach is not possible

16. bea.gov Medical Care Expenditure Indexes (MCEs) 16

17. bea.gov MEPS Data  Nationally representative sample with approximately 30,000 individuals  All sources of spending and associated CCS diagnosis codes  Raw MEPS data files used (pool 2 years of data) 17

18. bea.gov MarketScan ® and Medicare Claims Data  Commercially-insured patients from the MarketScan ® Data from Truven Health  More than 2 million enrollees in each year  Convenience sample  application of population weights  Medicare patients from 5 percent random sample of enrollees  Approximately 2 million enrollees each year  Prescription drug expenditures per episode imputed using MEPS for 2000-2012 sample period  Excludes Medicare Advantage enrollees  application of population weights 18

19. bea.gov Construction of Blended Account  Use population weights from MEPS to fold in data from different sources 19

20. bea.gov Construction of Blended Index  After claims data is incorporated, the Blended Account is constructed identically to the MEPS Account  Expenditures and MCE indexes are computed for each of the 263 CCS categories  Report 18 Disease Categories (CCS Chapters) and aggregate 20

21. bea.gov MCE MEPS, and MCE Blended yields faster growth than PCE (2009=100) 21

22. bea.gov Effects on Annual Real Growth Rates *Based on 2000-2010 Estimates PCE Health by Function Actual PCE Health 3.3% Using MCE MEPS 2.4% Using MCE Blended 2.0% Overall PCE Actual PCE 2.1% Using MCE MEPS 1.9% Using MCE Blended 1.8% GDP Actual GDP 1.6% Using MCE MEPS 1.5% Using MCE Blended 1.5% 22

23. bea.gov Total Spending by Disease Category 23

24. bea.gov Trends in disease-based price indexes are volatile using the MEPS index 24

25. bea.gov Trends in disease-based price indexes are volatile using the MEPS index 25

26. bea.gov 26 Increases in cost per case contributed 64 percent to per capita spending growth

27. bea.gov Decomposition of the Contributions to Annual Spending Growth 27

28. bea.gov Decomposition of the Contributions to Per Capita Spending Growth for 2000-2012 28

29. bea.gov Per Capita Spending Growth for Select CCS Categories 29

30. bea.gov Conclusion  Improves our understanding of spending trends  Another step in broader goal to improve health statistics  A lot more work to be done… 30

31. bea.gov Next steps  Representativeness (e.g., Medicare Advantage and Commercial HMO enrollees)  Expenditure allocation  Coverage over time  Quality adjustment 31

32. bea.gov 32 www.bea.gov/national/health_care_satellite_account.htm

33. bea.gov EXTRA SLIDES 33

34. bea.gov 34 Recent slow down in the annual growth in nominal health spending (2001-2013)

35. bea.gov Differences between an MCE and PPI Examples: (Ceteris Paribus)MCEPPI Change from high cost inpatient visit to lower cost outpatient visit ↓ - Higher intensity procedures used in physician offices ↑ - Change from restrictive insurance plan to generous plan ↑ - Higher prices for physician office procedures ↑↑ 35

36. bea.gov Disease allocation methods General strategies for disease allocation: 1.Encounter-based approach (e.g., primary diagnosis method) 2.Episode-based approach 3.Person-based approach  BEA has not settled on a “best” method  Apply a primary diagnosis approach using the CCS classification system (263 Clinical Classification Software (CCS) categories)  Simplicity and widespread use 36

37. bea.gov 37

38. bea.gov Total Spending by Disease category (Using Blended method for 2010) 38 Top 5 categories account for 51 percent of spending

39. bea.gov Increases in cost per case contributed 73 percent to per capita spending growth? 39 71%

40. bea.gov Effect of HMO Inclusion - MarketScan 40

41. bea.gov Effects of Severity Adjustment 41

42. bea.gov Coverage over time  Historic estimates  Aizcorbe and Highfill (2015) – back to 1980  Timely estimates  BLS work – Bradley (2014) 42

43. bea.gov Recent research shows growth in a disease-based price index can rise faster or slower than the PCE price index 43 Source: Aizcorbe and Highfill, “Medical Care Expenditure Indexes for the US, 1980-2006”

44. bea.gov Quality Adjustment – Heart Attacks (AMI) 44

45. bea.gov Schedule and Future Work  Schedule  SCB release of updated data for HCSA for 2011 and 2012 (later in 2015)  Future work  Continue to work with other agencies and health experts on consistent measures of disease-based spending and prices  Creating a longer time series and current estimates  Evaluate the impact on Industry accounts  Continue to evaluate data sources – MEPS, MarketScan ®, Medicare, Medicaid, nursing homes, and others  Evaluate impact of severity  Evaluate quality adjustment 45

46. bea.gov Implication for Industry Accounts: New Price Indexes imply change in Value Added and Gross Output  Real Value Added = Gross Output – Intermediate inputs  Input prices will stay the same for intermediate commodities  Use new disease-based price index for all affected disaggregated sectors  Our current method in the Health Care Satellite Account allocates spending proportionally across all industries  Productivity in certain health sectors will change  More research is needed to evaluate other methods to incorporate these new indexes 46

47. bea.gov Industry Example: Average Annual Real Growth Rates between 2000 and 2010 for Gross Output and Value Added 47