STRATEGIES FOR A BEA SATELLITE HEALTH CARE ACCOUNT

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Christopher Mackie, Rapporteur Committee on National Statistics Division of Behavioral and Social Sciences and Education

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THE NATIONAL ACADEMIES PRESS 500 Fifth Street, N.W. Washington, DC 20001 NOTICE: The project that is the subject of this report was approved by the Governing Board of the National Research Council, whose members are drawn from the councils of the National Academy of Sciences, the National Academy of Engineering, and the Institute of Medicine. The members of the committee responsible for the report were chosen for their special competences and with regard for appropriate balance. This study was supported by Contract No. DG132106CN028 between the National Acad- emy of Sciences and the United States Department of Commerce, Bureau of Economic Analysis. The work of the Committee on National Statistics is provided by a consortium of federal agencies through a grant from the National Science Foundation (Number SBR-0112521). Any opinions, findings, conclusions, or recommendations expressed in this publication are those of the author(s) and do not necessarily reflect the views of the organizations or agencies that provided support for the project. International Standard Book Number-13: 978-0-309-12717-2 International Standard Book Number-10: 0-309-12717-3 Additional copies of this report are available from The National Academies Press, 500 Fifth Street, NW, Lockbox 285, Washington, DC 20055; (800) 624-6242 or (202) 334-3313 (in the Washington metropolitan area); Internet, http://www.nap.edu. Copyright 2009 by the National Academy of Sciences. All rights reserved. Printed in the United States of America Suggested citation: National Research Council. (2009). Strategies for a BEA Satellite Health Care Account: Summary of a Workshop. Christopher Mackie, Rapporteur. Steering Committee for the Workshop to Provide Guidance for Development of a Satellite Health Care Account at the Bureau of Economic Analysis. Committee on National Statistics, Division of Behavioral and Social Sciences and Education. Washington, DC: The National Academies Press.

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The National Academy of Sciences is a private, nonprofit, self-perpetuating society of distinguished scholars engaged in scientific and engineering research, dedicated to the furtherance of science and technology and to their use for the general welfare. Upon the authority of the charter granted to it by the Congress in 1863, the Academy has a mandate that requires it to advise the federal government on scientific and technical matters. Dr. Ralph J. Cicerone is president of the National Academy of Sciences. The National Academy of Engineering was established in 1964, under the charter of the National Academy of Sciences, as a parallel organization of outstanding engineers. It is autonomous in its administration and in the selection of its members, sharing with the National Academy of Sciences the responsibility for advising the federal government. The National Academy of Engineering also sponsors engineering programs aimed at meeting national needs, encourages education and research, and recognizes the superior achievements of engineers. Dr. Charles M. Vest is president of the National Academy of Engineering. The Institute of Medicine was established in 1970 by the National Academy of Sciences to secure the services of eminent members of appropriate professions in the examina- tion of policy matters pertaining to the health of the public. The Institute acts under the responsibility given to the National Academy of Sciences by its congressional charter to be an adviser to the federal government and, upon its own initiative, to identify issues of medical care, research, and education. Dr. Harvey V. Fineberg is president of the Institute of Medicine. The National Research Council was organized by the National Academy of Sciences in 1916 to associate the broad community of science and technology with the Academy’s purposes of furthering knowledge and advising the federal government. Functioning in accordance with general policies determined by the Academy, the Council has become the principal operating agency of both the National Academy of Sciences and the National Academy of Engineering in providing services to the government, the public, and the scientific and engineering com- munities. The Council is administered jointly by both Academies and the Institute of Medicine. Dr. Ralph J. Cicerone and Dr. Charles M. Vest are chair and vice chair, respectively, of the National Research Council. www.national-academies.org

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STEERINg COMMITTEE FOR THE WORkSHOP TO PROvIDE guIDANCE FOR DEvELOPMENT OF A SATELLITE HEALTH CARE ACCOuNT AT THE BuREAu OF ECONOMIC ANALySIS Joseph p. Newhouse (Chair), Division of Health Policy Research and Education, Harvard University BarBara FraumeNi, Muskie School of Public Service, University of Southern Maine Gail wileNsky, Project HOPE, Bethesda, Maryland Christopher maCkie, Study Director miChael siri, Senior Program Assistant 

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COMMITTEE ON NATIONAL STATISTICS 2007-2008 william F. eddy (Chair), Department of Statistics, Carnegie Mellon University kathariNe aBraham, Department of Economics and Joint Program in Survey Methodology, University of Maryland william dumouChel, Lincoln Technologies, Inc., Waltham, Massachusetts JohN haltiwaNGer, Department of Economics, University of Maryland V. Joseph hotz, Department of Economics, Duke University kareN kaFadar, Department of Statistics, Indiana University douGlas massey, Department of Sociology, Princeton University sally mortoN, RTI International, Research Triangle Park, North Carolina ViJay Nair, Department of Statistics and Department of Industrial and Operations Engineering, University of Michigan Joseph p. Newhouse, Division of Health Policy Research and Education, Harvard University samuel h. prestoN, Population Studies Center, University of Pennsylvania keNNeth prewitt, School of International and Public Affairs, Columbia University louise ryaN, Department of Biostatistics, Harvard University roGer touraNGeau, Joint Program in Survey Methodology, University of Maryland, and Survey Research Center, University of Michigan alaN zaslaVsky, Department of Health Care Policy, Harvard University Medical School CoNstaNCe F. Citro, Director i

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Preface The workshop summarized in this report was convened by the Committee on National Statistics (CNSTAT) on behalf of the Bureau of Economic Analysis (BEA) to advance their plans to produce a satellite health care account designed to improve measurement of activity in the health and medical care sectors of the economy. The purpose of this workshop was to elicit expert guidance on strate- gies for better coordinating health expenditure statistics, developing medical care price measures, and producing comprehensive sets of accounts for health care sector income, expenditure, and product organized by type of disease that are more directly useful for measuring health care inputs, outputs, and productivity. Such data are central to tracking the share of the country’s resources devoted to medical care, how rapidly that share is increasing, and, most importantly, what the country is getting from this increased spending on medical care. The workshop consisted of sessions covering the following topics: (1) plans for a satellite health care account, for which Ana Aizcorbe of BEA presented the goals of the agency’s health accounting program and progress to date on the proj- ect; (2) the Altarum Institute’s construction of nominal expenditures by disease, for which Charles Roehrig presented research findings; (3) price indexes and volume measures, for which Ralph Bradley and Bonnie Murphy of the Bureau of Labor Statistics discussed new work on health care indexes in the Consumer Price Index and Producer Price Index programs; (4) measuring treatment outcomes, for which Mark McClellan of the Brookings Institution discussed the challenges of constructing measures of treatment outcomes, essential for monitoring the qual- ity of medical care; and (5) national accounting issues, for which Brian Moyer of BEA provided details about BEA’s plan to modify the industry side of the ii

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iii PrEfACE national accounts so that they can remain synchronized with the disease-based organizational structure proposed for the satellite program. On behalf of CNSTAT, I thank all of the workshop presenters for prepar- ing detailed presentations and background papers, which provided the basis for engaging and productive discussion. I also thank the workshop participants for their insightful comments and fruitful exchange of ideas, as well as for their input as staff drafted this report. I especially wish to thank my colleagues on the work- shop steering committee, Barbara Fraumeni and Gail Wilensky, for their helpful guidance and leadership in planning and moderating the workshop. We are grateful for BEA’s sponsorship of the workshop and thank Dennis Fixler, Steven Landefeld, and, in particular, Ana Aizcorbe for offering guidance to staff and the workshop steering committee in the development of the agenda and in identifying the workshop goals. David Cutler, Dennis Fryback, Alan Garber, Emmett Keeler, Allison Rosen, and Jack Triplett, serving on CNSTAT’s Committee on National Health Accounts, which is working on another closely related project funded by the National Institute on Aging, provided input to the workshop planning as well. Michael Siri of the CNSTAT staff expertly managed the administrative details and workshop arrangements and worked on the report itself. Connie Citro, direc- tor of CNSTAT, provided guidance and support throughout the project. Kirsten Sampson Snyder guided this report through the review process. Most importantly, Christopher Mackie, the staff study director for the workshop, took the lead in planning the workshop and prepared and revised the report on the basis of com- ments from reviewers and workshop participants. This report has been reviewed in draft form by individuals chosen for their diverse perspectives and technical expertise, in accordance with procedures approved by the Report Review Committee of the National Research Council. The purpose of this independent review is to provide candid and critical com- ments that assist the institution in making its report as sound as possible, and to ensure that the report meets institutional standards for objectivity, evidence, and responsiveness to the study charge. The review comments and draft manuscript remain confidential to protect the integrity of the deliberative process. The panel thanks the following individuals for their review of this report: Jessica Banthin, Center for Financing, Access, and Cost Trends, Agency for Healthcare Research and Quality; Barbara M. Fraumeni, Muskie School of Public Service, University of Southern Maine, Portland; Dale W. Jorgenson, Depart- ment of Economics, Harvard University; and Matthew D. Shapiro, Department of Economics, University of Michigan. Although the reviewers have provided many constructive comments and suggestions, they were not asked to endorse the conclusions or recommendations, nor did they see the final draft of the report before its release. The review of this report was overseen by Katharine G. Abraham, Joint Program in Survey Methodology, University of Maryland. Appointed by the National Research Council, she was responsible for making

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ix PrEfACE certain that the independent examination of this report was carried out in accor- dance with institutional procedures and that all review comments (including her own) were carefully considered. Responsibility for the final content of the report rests entirely with the institution. Joseph P. Newhouse, Chair Steering Committee for the Workshop to Provide Guidance for Development of a Satellite Health Care Account at the Bureau of Economic Analysis

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Contents 1 INTRODUCTION 1 1.1. Project Description and Report Structure, 1 1.2. What Kind of “Satellite” Health Care Account?, 4 1.3. Objectives of the BEA Project—A Staged Strategy for Developing a National Health Care Account, 7 2 ALLOCATING NOMINAL EXPENDITURES ON MEDICAL CARE: A DISEASE-BASED CONCEPTUAL APPROACH 12 2.1. Methods for Attributing Spending to Treatments: The Big Comorbidity Issue, 13 2.2. Allocating Personal Health Expenditures by Medical Condition: The Altarum Institute Project, 18 2.3. Comparing the Methods, 22 2.4. Data Needs for Expenditure Accounting, 25 3 PRICE INDEXES: CALCULATING REAL MEDICAL CARE GDP 30 3.1. Pricing Treatments to Capture Changing Technologies, Input Substitution, and Population Heterogeneity, 32 3.2. BEA’s Strategy for Coordinating the Industry Input Accounts with the Disease Treatment–Based Expenditure Concept, 35 3.3. Tracking Quality Change of Medical Goods and Services, 41 3.4. The Role of the BLS Price Indexes, 44 3.5. Outcomes and Quality Change, 56 3.6. Data Needs for Price Measurement, Tracking Outcomes, and Quality Adjustment, 60 xi

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xii CONTENTS 4 SUMMARY, PERSPECTIVE, AND PROSPECTS FOR MOVING FORWARD 63 REFERENCES 66 APPENDIXES A Summary Statistics from the Medical CPI and U.S. Medical Expenditures Panel Survey 67 B Workshop Agenda and Participants 84 C Adapting BEA’s National and Industry Accounts for a Health Care Satellite Account 88 Brent r. Moulton, Brian C. Moyer, and Ana Aizcorbe