In this section, we have noted formidable difficulties in measuring inputs to the medical care sector and have suggested data improvements to surmount them. Most of the problems we have identified imply that input growth is understated in medical care industries. For example, human capital in medicine is growing more rapidly than labor hours, and quality-adjusted scanner investment is likely growing considerably more rapidly than the rate estimated using existing PPI deflators. Correcting those biases—because the corrections would raise the overall growth of inputs—would make the already notoriously negative MFP growth in medical care even more negative.
With all the changes in medical practice in recent years, we believe that negative MFP growth in medical care is implausible. This, then, leads to the presumption that output growth must also be understated, and by more than the understatement of input growth. The remainder of this chapter, and most of the following two, concerns methods for measuring the output of medical care.
Many health economists agree that the unit of output for measuring medical care is an episode of treatment for a specific disease or condition. Authors who have proposed, developed, or supported the disease-based approach include Scitovsky (1967); Newhouse (1992); Berndt, Busch, and Frank (1998); Cutler et al. (1998); Berndt et al. (2000); Cutler and Berndt (2001);Shapiro, Shapiro, and Wilcox (2001); Triplett (2001); Atkinson (2005); and Dawson et al. (2005).
The consensus has extended to statistical agencies: U.S. PPI hospital price indexes, beginning in 1992 (Catron and Murphy, 1996), the Eurostat manual for measuring services in national accounts (Eurostat, 2001), new German output measures for medical care (Organisation for Economic Co-operation and Development, 2009), and the Organisation for Economic Co-operation and Development manual on measuring education and medical care output (Schreyer, 2009) all accept the view that the “product” of medical care is the treatment of a disease. Moreover, the new North American Product Classification System (NAPCS) specifies the products of medical care industries by a disease classification system (basically, the International Classification of Diseases [ICD]).
Griliches (1992) remarked that controversies arise in measuring services outputs because “it is not exactly clear what is being transacted, what is the output, and what services correspond to the payments made to their providers.” Fifteen years ago, the concept of output for medical care was in dispute, and, in the absence of research on medical care employing a coherent output concept, this report would have been forced to justify at length the proposal to treat medi-