Advisers to the Nation on Science, Engineering, and Medicine

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 examination 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 communities. 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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It has become trite to observe that increases in health care costs have become unsustainable. How best for policy to address these increases, however, depends in part on the degree to which they reflect changes in the quantity of medical services as opposed to increased unit prices of existing services. And an even more fundamental question is the degree to which the increased spending actually has purchased improved health.

This report addresses both of these issues. The government agencies responsible for measuring unit prices for medical services have taken steps in recent years that have greatly improved the accuracy of those measures. Nonetheless, this report has several recommendations aimed at further improving the price indexes. Because medical care is such a large part of the economy, inaccurate medical price indexes can cause significant inaccuracies in overall measures of inflation.

And accurate measures of inflation matter a great deal for policy: they affect the tightness of monetary and fiscal policy; they affect government budgets, because about a third of the federal budget is indexed for inflation; and inaccurate price indexes by definition lead to inaccurate measures of productivity.

Measuring the price of medical services well is difficult, but the ultimate question is the degree to which monies spent on medical services, as well as other policy measures, affect health outcomes. This question is much harder than measuring prices, but the panel recommends some steps it thinks will improve the nation’s capacities in this domain.

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

(NRC). The purpose of this independent review is to provide candid and critical comments that will assist the institution in making its published 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 wishes to thank the following individuals for their review of this report: Thomas E. Getzen, Fox School of Business, Temple University; Paul B. Ginsburg, Center for Studying Health System Change, Washington, DC; Sherry Glied, Department of Health Policy and Management, Mailman School of Public Health, Columbia University; Dale W. Jorgenson, Department of Economics, Harvard University; J. Steven Landefeld, Bureau of Economic Analysis, U.S. Department of Commerce; Mary O’Mahony, National Institute of Economic and Social Research (UK) and University of Birmingham; and Michael Stoto, Health Systems Administration and Population Health, Georgetown University School of Nursing and Health Studies.

Although the reviewers have provided many constructive comments, and improved the content of the report a great deal, they were not asked to endorse the conclusions or recommendations; nor did they see the final draft of the report prior to its release. The review of this report was overseen by Katharine G. Abraham, Joint Program in Survey Methodology, University of Maryland, and Charles E. Phelps, university professor and provost emeritus, University of Rochester. Appointed by the NRC’s Report Review Committee, they were responsible for making certain that an independent examination of this report was carried out in accordance with institutional procedures and that all review comments were carefully considered. Responsibility for the final content of this report rests entirely with the authoring panel and the institution.

Many others generously gave of their time to present at meetings and to answer questions from panel members and staff, thereby helping the panel to develop a clearer understanding of key issues relevant to the development of medical care and health accounting systems. The panel especially thanks the National Institute on Aging (NIA) Division of Behavioral and Social Research, which supported the work of the panel as it wrestled over many months with the difficult issues in conceptualizing health and medical care accounts and moving toward their development, and the federal statistical agencies, which allowed the panel access to key personnel with extensive expertise about various data programs. Richard Suzman and John Haaga of NIA provided insights and guidance as project initiators. Perspectives from other interested agencies were expertly supplied by Todd Caldis, Cathy Cowan, Jonathan Cylus, Mark Freeland, Stephen Heffler, Arthur Sensenig, and Andrea Sisko of the Centers for Medicare & Medicaid Services (U.S. Department of Health and Human Services); by Ralph Bradley, John Greenlees, Michael Horrigan, John Lucier, Robert McClelland, Bonnie Murphy, and Roslyn Swick of the Bureau of Labor Statistics (U.S. Department of Labor); by Ana Aizcorbe, Dennis Fixler, and J. Steven Landefeld

of the Bureau of Economic Analysis (U.S. Department of Commerce); by Jessica Banthin, Yen-Pin Chiang, Steven Cohen, and William Lawrence of the Agency for Healthcare Research and Quality (U.S. Department of Health and Human Services); by Linda Bilheimer and Christine Cox of the National Center for Health Statistics (Centers for Disease Control and Prevention, U.S. Department of Health and Human Services); by Theodore Stefos of the U.S. Department of Veterans Affairs; and by Anne Hall of the Board of Governors of the Federal Reserve.

The panel also learned a great deal from hearing about health data efforts by government agencies and researchers abroad. For their participation and willingness to travel great distances to do so, the panel thanks John Goss, Australian Institute of Health and Welfare; Sandra Hopkins, Organisation for Economic Co-operation and Development Health Division; Mary O’Mahony, National Institute of Economic and Social Research (UK) and University of Birmingham; and Michael Wolfson, Statistics Canada.

On the home front, the panel could not have conducted its work without an excellent and well managed NRC staff. In that regard, it appreciates the support of Constance Citro, director of the Committee on National Statistics; Michael Siri, program associate; and Christopher Mackie, the panel’s study director.

Most importantly, I thank the members of the panel for their hard work. This report reflects the collective expertise and commitment of the individual members of the panel. All participated in the panel’s many meetings and in drafting material for discussion and, ultimately, for the report itself. Each member brought a critical perspective, and our meetings provided many opportunities for panel members to learn from one another.

Joseph P. Newhouse, Chair

Panel to Advance a Research Program on

the Design of National Health Accounts

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ACES Annual Capital Expenditures Survey

ACG adjusted clinical groups

ACS American Community Survey

ADL activities of daily living

AHIP America’s Health Insurance Plans

AHRQ Agency for Healthcare Research and Quality

APG Ambulatory Patient Groups

ASM Annual Surveys of Manufactures

ATUS American Time Use Survey

BEA Bureau of Economic Analysis

BLS Bureau of Labor Statistics

BMI body mass index

BRFSS Behavioral Risk Factor Surveillance System

CAT computerized adaptive test

CCS Clinical Classification Software

CDC Centers for Disease Control and Prevention

CDM chronic disease model

CES Current Employment Survey

CIHI Canadian Institute for Health Information

CIR Current Industrial Reports

CMS Centers for Medicare & Medicaid Services

CNSTAT Committee on National Statistics

COI cost of illness

CPI Consumer Price Index

CPS Current Population Survey

CRG clinical risk grouping

CRIW Conference on Research in Income and Wealth

DALY disability-adjusted life year

DCG diagnostic cost groups

DoD U.S. Department of Defense

DRG diagnostic-related groups system

EKG electrocardiograph

EMG electromyography

EPA U.S. Environmental Protection Agency

ER emergency room

ETG episode treatment groups

EU European Union

FRB Federal Reserve Board

GDP gross domestic product

HCPCS Healthcare Common Procedure Coding System

HCUP Healthcare Cost and Utilization Project

HHS U.S. Department of Health and Human Services

HIPAA Health Insurance Portability and Accountability Act

HIV human immunodeficiency virus

HIV/AIDS human immunodeficiency virus/acquired immunodeficiency syndrome

HOS Medicare Health Outcomes Survey

HPV human papillomavirus

HRQoL health-related quality of life

HRS Health and Retirement Study

HUI2 Health Utilities Index Mark 2

HUI3 Health Utilities Index Mark 3

IADL instrumental activities of daily living

ICD-9 International Statistical Classification of Diseases and Related Health Problems, ninth revision

ICD-9-CM International Classification of Diseases, ninth revision, Clinical Modification

ICD-10 International Statistical Classification of Diseases and Related Health Problems, tenth revision

ICT information and communications technology

IOM Institute of Medicine

IPI International Price Index

IRS U.S. Internal Revenue Service

ISR University of Michigan Institute for Social Research

IT information technology

JCUSH Joint Canada/United States Survey of Health

KLEMS inputs for medical services that go into a medical care account: capital services (K); labor services—the vector of all labor inputs, from surgeons to janitors (L); energy (E); intermediate or purchased materials, which, in medical care–providing industries, includes pharmaceuticals used in hospitals and clinics (M); and purchased services (S)

LDC less-developed countries

LE life expectancy

LP labor productivity growth

MC marginal cost

MCBS Medicare Current Beneficiary Survey

MDC major diagnostic category

MedPAC Medicare Payment Advisory Commission

MEG medstat episode groups

MEPS Medical Expenditure Panel Survey

MFP multifactor productivity

MI myocardial infarction

MRI magnetic resonance imaging

NAICS North American Industry Classification System

NAPCS North American Product Classification System

NBER National Bureau of Economic Research

NCHS National Center for Health Statistics

NCS National Comorbidity Survey

NCS-R National Comorbidity Survey-Replication

NCVHS National Committee on Vital and Health Statistics

NDC National Drug Code

NDI National Death Index

NEFS National Epidemiologic Followup Study

NHA National Health Account

NHANES National Health and Nutrition Examination Survey

NHCS National Health Care Survey

NHEAs National Health Expenditure Accounts

NHHCS National Home and Hospice Care Survey

NHIS National Health Interview Survey

NHMS National Health Measurement Study

NHSDA National Household Survey on Drug Abuse

NIA National Institute on Aging

NIESR National Institute of Economic and Social Research (UK)

NIH National Institutes of Health

NIPAs National Income and Product Accounts

NIS Nationwide Inpatient Sample

NMES National Medical Expenditures Survey

NNHS National Nursing Home Survey

NOMESCO Nordic Medico-Statistical Committee

NRC National Research Council

NSAS National Survey of Ambulatory Surgery

NSF National Science Foundation

OECD Organisation for Economic Co-operation and Development

OTC over the counter

PCE personal consumption expenditures

PHC personal health care

PPI Producer Price Index

PPMS Provider Performance Measurement System

PROMIS Patient-Reported Outcomes Measurement and Information System

QALE quality-adjusted life expectancy

QALY quality-adjusted life year

QOL quality of life

QWB-SA Quality of Well-Being Scale, self administered

R&D research and development

RRU relative resource use

SAMHSA Substance Abuse and Mental Health Services Administration

SEER Surveillance, Epidemiology, and End Results Program

SEER-CMHSF Surveillance, Epidemiology, and End Results-Continuous Medicare History Sample File

SES socioeconomic status

SHA system of health accounts

SID State Inpatient Database

TFP total factor productivity

USVEQ U.S. Valuation of the EQ-5D

VA U.S. Department of Veterans Affairs

VAS visual analog scale

VBID value-based insurance design

WHO World Health Organization

WHS World Health Survey

In order for policy makers to pursue informed actions to enhance efficiency of the nation’s approach to medical and health care—whether through carefully targeted cost reductions or improved performance—a redesigned data system for tracking resource productivity is needed. This report lays out strategies for advancing this objective. Specifically, the panel recommends that work proceed on two projects that are distinct but complementary in nature: the first involves reformulating the economic accounting of inputs and outputs for the medical care sector; the second involves developing a data system that coordinates population health statistics with information on the determinants of health. Though the scope of activities required for each of these two projects is different, both economic problems involve identifying units of measurement for which meaningful prices and quantities can be attached so that returns to investments in health can be estimated, tracked over time as the quality of care and the composition of the population change, and compared under alternative planning scenarios.

Inputs to medical care include capital, labor, energy and materials, research and development, and the like. The report gives considerable attention to how expenditures on these inputs are to be allocated in an accounting structure, with the panel recommending that a substantial portion can be framed in terms of treatments for diseases and other well-defined conditions. In principle, this structure allows the value of the output of medical care to consumers (patients) to be adjusted to reflect changing quality of outcomes.

Inputs to health, the output of a broader accounting concept, include medical care but also many other factors. An essential component of this kind of account—and, more immediately, a data system that could be used in its development—involves selecting a summary measure of population health, and

the report assesses the options. Though it involves very long-term commitments, efficient management of health care resources requires developing a more complete understanding than currently exists of the links between population health and the array of health inputs. Thus, the report discusses data needs and issues that are confronted in research seeking to attribute health effects to both medical and nonmedical (as well as market and nonmarket) inputs to health.

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