- NEW The November 2018 Disease-Based Price Indexes are now available.
- CORRECTION: A correction to the CPI data affects disease based price index data downloaded prior to 10/21/2016. The affected months are May 2016 through August 2016. Please download the current version for the corrected values for these months.
- Experimental Disease-Based Price Indexes
Experimental Disease-Based Price Indexes
In 2013, healthcare accounted for 17.4 percent of U.S. Gross Domestic Product (GDP). Because healthcare is such a large sector, it is important that we measure its output and prices correctly. If published healthcare inflation rates are too high, then measured real output growth is too low and consumers are getting more for their healthcare dollar than the published estimates suggest. Similarly, if published healthcare inflation rates are too low, measured real output growth would be too high.
The Bureau of Labor Statistics (BLS) is committed to producing and publishing the most accurate medical price indexes possible. BLS has constructed experimental disease-based price indexes to find a better way to estimate inflation, real medical output, and real consumption.
Federal statistical agencies currently report medical data for goods and services. The National Health Expenditure Accounts (NHEA), the National Income and Product Accounts (NIPA), the Producer Price Index (PPI), and the Consumer Price Index (CPI) all report their medical statistics for physician services, hospital services, pharmaceuticals and other types of medical goods and services. However, many economists and others who analyze healthcare data believe this is not the best way to report medical statistics. In 1967, the U.S. Department of Health, Education, and Welfare noted:
"...the average consumer of medical care is not as interested in the price of a visit or hospital day as he is in the total cost of an episode of illness."
Starting with the pioneering work of Anne Scitovsky (1967), many analysts found that reporting medical statistics on a disease basis rather than a goods and services basis could provide better information on well-being. There can be large differences between the two methods because reporting on a disease basis can account for new technology that changes the use of medical resources. For example, in the 1990s a new generation of antidepressants could treat depression with fewer therapy visits. A disease-based price index for depression could account for this change in treatment, but indexes produced under the traditional approach of using medical goods and services could not.
Studies completed in the 1990's and early 2000's compute price indexes for cataracts, heart disease and depression. These studies find that their disease-based price indexes grow less rapidly than indexes based on goods and services. The reason is that innovations changed how medical goods and services are used to treat these diseases. As a result, the Committee on National Statistics (CNSTAT) in 2002 published a recommendation that BLS create experimental disease-based price indexes. This recommendation calls on BLS to use medical claims data to determine the quantity of physician visits, hospital visits and other inputs and use these quantities as weights in the construction of disease-based price indexes. The prices for these indexes would continue to come from the current price-collection system. While BLS would continue to generate monthly experimental disease-based price indexes from its monthly price collection system, the quantities would only be updated every year or two. The information on this page results from the CNSTAT recommendation.
When BLS set out to implement the CNSTAT recommendation, we established several criteria. First, the indexes had to be timely. Second, they needed to have a cost-of-living basis. Third, they could be used as an input for the All-Items Consumer Price Index. Fourth, there could be no additional costs or any disruption to existing statistical programs when constructing these indexes. Finally, the methods must be transparent.
Because of the criterion for no additional costs, BLS could not use medical claims for inputs because medical claims data are expensive. Instead, we use the publicly available Medical Expenditure Panel Survey (MEPS). We then get a blended data result, with prices from the BLS price index programs and quantities from MEPS.
One challenge in constructing disease-based price indexes is the choice of a method that accounts for comorbidities. Comorbidities occur when a physician office visit or a hospital visit treats a patient for more than one disease. We construct two types of disease-based price indexes that account for comorbidities differently. In one index, if a physician treats two diseases in the same visit, one visit will be allocated to each disease. In the other index, a fraction of the physician visit is assigned to each disease; the fractions must sum to one.
See the complete description of our methods to construct disease based price indexes.
Figure 1 below compares three different medical price indexes. The first is the all disease index computed under traditional goods and services method where the usage is not updated. We call this the Lowe Index. The next two are disease-based price indexes where one assigns fractions to the comorbidities as discussed in the previous paragraph and the other does not. From 1999 to April 2015, the disease-based price indexes on average grew less rapidly than the traditional Lowe index. However, there were periods when the reverse was true, particularly from 1999 to 2007. This was a period when health insurance coverage shifted from health maintenance organizations to more generous preferred provider policies. In recent years, the disease-based price indexes have grown more slowly than the Lowe index as usage has decreased when treating various diseases.
Figure 2 shows the effects of the various price indexes have on real expenditures in 2012. Nominal expenditures are represented by the gray bars. Real expenditures deflated by the traditional Lowe Index are represented by the red bars, and real expenditures deflated by a disease-based price index are represented by the light blue bars. Using a disease-based price index results in higher real medical care expenditures for 2012 than using the traditional Lowe price indexes. This also increases real GDP.
Similar to BLS's currently published Lowe medical indexes, the experimental disease-based price indexes need a representative sample of medical transaction prices. The sampling of medical prices is a challenging task. Respondent participation in our price-collection programs is voluntary, and the reimbursement rates negotiated between insurers and medical providers often are proprietary. These rates are not posted for all customers to observe in the same way as, say, coffee prices in a grocery store. This puts more burden on respondents for the medical providers and on the BLS field economists who collect these prices. BLS has reduced respondent burden, and we are trying to reduce it even more. We appreciate the cooperation of the medical providers who participate in our price-collection program.
It is a great accomplishment to release these indexes in timely manner without increasing costs or disrupting our current statistical programs. BLS has found a way to use our existing products better.
BLS is not the only statistical agency that is producing statistics on a disease basis. The U.S. Bureau of Economic Analysis (BEA) has also introduced a Health Care Satellite Account, in which spending is reported by disease rather than by medical goods and services. BEA has also generated disease-based price indexes with a variety of databases.
Yet, there is still much to do. Patients consume medical goods and services to heal or be protected from disease. However, there currently is no reliable data source on the healing and prevention outcomes from medical spending. Many data users have suggested that BLS adjust our healthcare price indexes to reflect changes in the quality of the treatment outcomes that result from new technology. There are many challenges to quality adjustment, and we outline them in our methods.
Disease-based price indexes are in their infancy. We regard them as experimental because we still need to learn more from the research that we and others will conduct. As we learn and improve these indexes, BLS hopes that they will greatly enhance our understanding of the healthcare sector.
We list below additional research about healthcare price indexes. Not all the authors of the research papers and conference presentations are affiliated with BLS. We provide this information for your convenience, and this research does not necessarily reflect the views or policies of BLS.
The file below decomposed the growth in nominal expenditure by disease into the parts that come from inflation growth, population growth and prevalence growth.
- Decomposition of Nominal Expenditure Growth (XLSX)
- Decomposition of Nominal Expenditure Growth by Disease (XLSX)
The file below contains charts and the monthly history of the various disease based price indexes from January 1999 to the latest month in 2018. It contains not only the utilization adjusted disease based price indexes but also the indexes that are computed under traditional methods (the Lowe Indexes). There are the unsmoothed indexes where all the yearly quantity updates are done in January of each year and causing a jump in January and also the smoothed indexes where 1/12 of the yearly quantity adjustment is applied to each month.
- Price Indexes from 1999 to 2018 (XLSM)
- Instructions - Query Tool for the Disease Based Price Indexes (PDF)
- Aizcorbe A. and Nestoriak N. (2010), "Changing Mix of Medical Care Services: Stylized Facts and Implications for Price Indexes," Journal of Health Economics 30, no. 3 (May): 568—574.
- Aizcorbe A., Bradley R., Greenaway—McGrevy R., Herauf B., Kane R., Liebman E., Pack S., Rozental L., (2011), "Alternative Price Indexes for Medical Care: Evidence from the MEPS Survey" Bureau of Economic Analysis: Working Paper WP2011—01.
- Aizcorbe, Ana M. (2013), "Recent Research on Disease—Based Price Indexes: Where Do We Stand?" SURVEY OF CURRENT BUSINESS 93 (July): 9–13.
- Aizcorbe, Ana M., and Nicole Nestoriak. (2011), "Changing Mix of Medical Care Services: Stylized Facts and Implications for Price Indexes." Journal of Health Economics 30, no. 3 (May): 568–574.
- Aizcorbe, Ana M., and Tina Highfill. (2014), "Medical Care Expenditure Indexes for the United States, 1980–2006." Paper presented at the Society of Economic Measurement Conference, Chicago, IL, August 18–20.
- Aizcorbe, Ana M., Bonnie A. Retus, and Shelly Smith (2008), "Toward a Health Care Satellite Account." SURVEY OF CURRENT BUSINESS 88 (May) 24–30.
- Aizcorbe, Ana M., Eli B. Liebman, David M. Cutler, and Allison B. Rosen, (2012), "Household Consumption Expenditures for Medical Care: An Alternate Presentation." SURVEY OF CURRENT BUSINESS 92 (June): 34–47.
- Aizcorbe, Ana M., Ralph Bradley, Ryan Greenaway—McGrevy, Brad Herauf, Richard Kane, Eli Liebman, Sarah Pack, and Lyubov Rozental. (2011), "Alternative Price Indexes for Medical Care: Evidence from the MEPS Survey." Bureau of Economic Analysis (BEA) Working Paper WP2011–01. Washington, DC: BEA.
- Baker C. and Bradley R., (2014), "The Simultaneous Effects of Obesity, Insurance Choice, and Medical Visit Choice on Healthcare Costs," forthcoming, Measuring and Modeling Health Care Costs, Ana Aizcorbe, Colin Baker, Ernst Berndt, and David Cutler, editors University of Chicago Press.
- Berndt E.R., Bir A., Busch S., Frank R., and Normand, S. (2002), "The Treatment of Medical Depression, 1991—1996: Productive Inefficiency, Expected Outcome Variations, and Price Indexes," Journal of Health Economics, 21: 373—396.
- Berndt E.R., Busch S.H., Frank R.G. (2001), "Treatment Price Indexes for Acute Phase Major Depression," in: D. M. Cutler and E. R. Berndt (Eds.), Medical Care Output and Productivity, Studies in Income and Wealth. University of Chicago Press Chicago. pp. 463—505.
- Berndt E.R., Cockburn I., and Griliches Z. (1996), "Pharmaceutical Innovations and Market Dynamics: Tracking Effects on Price Indexes on Anti—Depressant Drugs," Brookings Papers on Economic Activity: Micro—Economic 133—188.
- Berndt, Ernst R., David M. Cutler, Richard G. Frank, Zvi Griliches, Joseph P. Newhouse, and Jack E. Triplett. (2000), "Medical Care Prices and Output." In Handbook of Health Economics, edited by Anthony J. Culyer and Joseph P Newhouse, 119–180. Amsterdam, The Netherlands: North Holland.
- Bradley, R., Cardenas, E., Ginsburg, D.H., Rozental, L., Velez, F., (2010), "Producing disease—based price indexes" Monthly Labor Review 133, 20—28.
- Bradley, Ralph. (2013), "Feasible Methods to Estimate Disease—Based Price Indexes." Journal of Health Economics 32, no. 3 (May): 504–514.
- Bundorf, K.M., Royalty, A. and Baker, L.C., (2009), "Health Care Cost Growth Among the Privately Insured," Health Affairs, 28(5), 1294—1304.
- Cawley, J., (2004), "The Impact of Obesity on Wages," Journal of Human Resources, 39(2), 451—474.
- Cawley, J., and Meyerhoefer, C., (2012), "The Medical Care Costs of Obesity: An Instrumental Variable Approach," Journal of Health Economics, 31(1), 219—230.
- Chen, A.J., (2012), "When does weight matter?," Journal of Health Economics, 31(1), 285—295.
- Chernew M.E., Afendulis, C.C., Yulie, H., Zaslavsky, A.M., (2011),"The Impact of Medicare Part D on Hospitalization Rates," Health Services Research, 46:4, 1022—1038.
- Christian, Michael S. 2007. "Measuring the Output of Health Care in the United States." SURVEY OF CURRENT BUSINESS 87 (June): 78–83.
- Cutler, D.M, McClellan M., Newhouse J.P, Remler, D., (1998), "Are Medical Prices Declining? Evidence from Heart Attack Treatments," Quarterly Journal of Economics, 13(4) 991—1024.
- Cutler, David M., Mark McClellan, and Joseph P. Newhouse, (2000) "How Does Managed Care Do It?" The RAND Journal of Economics 31, no. 3: 526–548.
- Cutler, David M., Mark McClellan, Joseph P. Newhouse, and Dahlia Remler, (1998), "Are Medical Prices Declining? Evidence from Heart Attack Treatments." The Quarterly Journal of Economics 113, no. 4 (November): 991–1024.
- Diewert, W.E., (1976), "Exact and Superlative Index Numbers," Journal of Econometrics, 46(4), 883—900.
- Diewert, W.E., (1987), "Index Numbers," The New Palgrave: A Dictionary of Economics, Eatwell J. and Newman P. (eds.) The Macmillan Press, 767—780.
- Dunn, A., Liebman E.B., and Shapiro A., (2012), "Implications of Utilization Shifts on Medical—Care Price Measurement." Bureau of Economic Analysis (BEA) Working Paper WP2012——09. Washington, DC: BEA.
- Dunn, Abe, Eli B. Liebman, and Adam Shapiro. (2014), "Developing a Framework for Decomposing Medical Care Expenditure Growth: Exploring Issues of Representativeness." In Measuring Economic Sustainability and Progress, edited by Dale W. Jorgenson, J. Steven Landefeld, and Paul Schreyer, 545–574. Chicago: University of Chicago Press, for the National Bureau of Economic Research; www.nber.org/chapters/c12841.
- Dunn, Abe, Eli B. Liebman, Lindsey Rittmueller, and Adam Shapiro, (2014), "Defining Disease Episodes and the Effects on the Components of Expenditure Growth." Bureau of Economic Analysis (BEA) Working Paper WP2014–4. Washington, DC: BEA.
- Dunn, Abe, Eli B. Liebman, Sarah Pack, and Adam Shapiro, (2013), "Medical Care Price Indexes for Patients with Employer—Provided Insurance: Nationally Representative Estimates from MarketScan Data." Health Services Research 48, no. 3 (June): 1173–1190.
- Feenstra, R.C., (1995), "Exact Hedonic Price Indexes," The Review of Economics and Statistics, 77(4), 634—53.
- Frank, Richard G., Ernst R. Berndt, and Susan M. Busch. 1999. "Price Indexes for the Treatment of Depression." In Measuring the Prices of Medical Treatments, edited by Jack E. Triplett, 72–102. Washington, DC: The Brookings Institution.
- Glied, Sherry, (2000), "Managed Care." Handbook of Health Economics, edited by Anthony J. Culyer and Joseph P. Newhouse, 707–753. Amsterdam, The Netherlands: North Holland. Government Accountability Office (GAO). 2008.
- Hall, Anne E., and Tina Highfill, (2013), "A Regression Based Medical Care Expenditure Index for Medicare Beneficiaries." Bureau of Economic Analysis (BEA) Working Paper WP2013–4. Washington, DC: BEA. 21 January 2015 SURVEY OF CURRENT BUSINESS.
- Hall, Anne E., and Tina Highfill, (2014), "Calculating Disease—Based Medical Care Expenditure Indexes for Medicare Beneficiaries: A Comparison of Method and Data Choices." Bureau of Economic Analysis Working Paper. Washington, DC: BEA, June.
- Highfill, Tina, and Elizabeth Bernstein, (2014), "Using Disability Adjusted Life Years to Value the Treatment of Thirty Chronic Conditions in the United States From 1987–2010." In General Conference of the International Association for Research in Income and Wealth. Rotterdam, The Netherlands: South Holland.
- KonÃ¼s, A.A., (1939), "The Problem of the True Index of the Cost of Living," Econometrica, 7, 10—29.
- M. Kate Bundorf, Anne Royalty, and Laurence C. Baker, (2009) "Health Care Cost Growth Among The Privately Insured" Health Affairs, September/October 28:51294—1304; doi:10.1377/hlthaff.28.5.1294.
- Mackie C. and Schultze C.L., (2002) At What Price? Conceptualizing and Measuring Cost—of—Living Indexes, National Academy Press.
- Moulton, Brent R., Brian C. Moyer, and Ana Aizcorbe, (2009), "Adapting BEAâ€™s National and Industry Accounts for a Health Care Satellite Account." Strategies for a BEA Satellite Health Care Account: Summary of a Workshop. Washington, DC: The National Academies Press.
- Murphy B.H., Holdway M., Lucier J.L., Carnival J., Garabis E., and Cardenas E., (2008) "Proposal for Adjusting the General Hospital Producer Price Index for Quality Change," BLS Manuscript.
- Murphy, Kevin M., and Robert H. Topel. 2006. "The Value of Health and Longevity." Journal of Political Economy 114, no. 5 (October): 871–903. National Research Council. 2010. Accounting for Health and Health Care: Approaches to Measuring the Sources and Costs of Their Improvement. Washington, DC: The National Academies Press.
- Pinkovskiy, Maxim, (2014), "The Impact of the Political Response to the Managed Care Backlash on Health Care Spending: Evidence From State Regulations of Managed Care" Working Paper. New York, NY: Federal Reserve Bank of New York.
- Roehrig, C.S. and Rousseau, D.M., (2010), "The Growth in Cost Per Care Explains Far More of US Health Spending Increases than Rising Disease Prevalence," Health Affairs, 30:9 1657—1663.
- Roehrig, Charles, George Miller, Graig Lake, and Jenny Bryan. (2009), "National Health Spending by Medical Condition, 1996–2005." Health Affairs 28, no. (March/April): 358–367.
- Rosen S., (1974), "Hedonic Prices and Implicit Markets: Product Differentiation in Pure Competition," Journal of Political Economy, 34—55.
- Rosen, Allison B., and David M. Cutler, (2007), "Measuring Medical Care Productivity: A Proposal for U.S. National Health Accounts. SURVEY OF CURRENT BUSINESS 87 (June): 54–58.
- Rosen, Allison B., Eli Liebman, Ana M. Aizcorbe, and David M. Cutler. 2012. "Comparing Commercial Systems for Characterizing Episodes of Care." Bureau of Economic Analysis (BEA) Working Paper WP2012–7. Washington, DC: BEA.
- Sato K., (1967), "The Two—Level Constant Elasticity of Substitution Production Function," "Review of Economic Studies, vol. 34, 201—218.
- Sato, K., (1976), "The Ideal Log—Change Index Number," Review of Economics and Statistics, 58(2), 223—228.
- Scitovsky, A. A., (1967), "Changes in the Costs of Treatment of Selected Illness, 1951—65," American Economic Review LVII, 1182—1195.
- Selden, Thomas, and Merrile Sing. 2008. "The Distribution of Public Spending for Health Care in the United States, 2002." Health Affairs 27, no. 5 (September/ October): 349–359.
- Shapiro, Irving, Matthew D. Shapiro, and David W. Wilcox. 2001. "Measuring the Value of Cataract Surgery." In Medical Care Output and Productivity, edited by David M. Cutler and Ernst R. Berndt, 411–437.
- Shapiro, M. D., and Wilcox, D.M. (1996). "Mismeasurement in the Consumer Price Index: An Evaluation," in Bernanke, Ben S., Julio Rotemberg J. eds., NBER Macroeconomics Annual 1996. Cambridge and London: MIT Press, 93—142.
- Smith, Shelly. 2009. "A New Approach to Price Measures for Health Care." SURVEY OF CURRENT BUSINESS 89 (February): 17–20.
- Song X., Marder W., Houchens R., Conklin J.E., Bradley R., (2009), "Can A Disease Based Price Index Improve the Estimation of the Medical CPI ?" , Price Index Concepts and Measurement, Diewert, W.E, Greenlees, J.S., and Hulten C.R. (eds.) National Bureau of Economic Research ER, 329—372.
- Starr, Martha, Laura Dominiak, and Ana Aizcorbe. (2014) "Decomposing Growth In Spending Finds Annual Cost of Treatment Contributed Most to Spending Growth, 1980——2006." Health Affairs 33 (May) 823——831.
- Stewart, Susan, David M Cutler, and Allison B. Rosen. 2013. "U.S. Trends in Quality—Adjusted Life Expectancy From 1987 to 2008: Combining National Surveys to More Broadly Track the Health of the Nation." American Journal of Public Health 103 (November) 78–87.
- Studies in Income and Wealth, vol. 62. Chicago: University of Chicago Press.
- Thorpe K.E., Florence, C.S., and Joski P., (2004), "Which Medical Conditions Account for the Rise in Health Care Spending?" Health Affairs, W4.437, 437—445.
- Thorpe, Kenneth E., Curtis S. Florence, Peter Joski. 2004. "Which Medical Conditions Account for the Rise in Health Care Spending?" Health Affairs (August); DOI: 10.1377/hlthaff.w4.437.
- Triplett J.E., (2001) "What's Different about Health? Human Repair and Car Repair in National Accounts and in National Health Accounts," in Medical Care Output and Productivity, eds. Cutler D.M. and Berndt E.R., University of Chicago Press, 15—96.
- Trogdon, Justin, Eric A. Finkelstein, and Thomas J. Hoerger. 2008. "Use of Econometric Models To Estimate Expenditure Shares." Health Services Research 43, no. 4 (August): 1442–1452.
- Zuvekas, Samuel H., and Gary L. Olin. 2009. "Accuracy of Medicare Expenditures in the Medical Expenditure Panel Survey. Inquiry 46, no. 1 (Spring): 92–108.
Last Modified Date: December 13, 2018