Defining Disease Episodes and the Effects on the Components of Expenditure Growth

The goal of health care spending is to treat diseases and improve health, yet there are no national health statistics that track the cost of treatment by disease. This is a serious omission, and the need for more detailed national statistics by disease has been recoginized by both academics and policy makers that have called for the development of a National Satellite Account for Health Care that is centered around disease treatment ((See Berndt et al. (2000) and Newhouse et al. (2010))), with a particular interest in tracking the disease-price (i.e., expenditure per disease episode).

There are many reasons for focusing on tracking the cost of disease treatment. Policy makers, consumers, and industry participants are increasingly interested in whether changes in the cost of treatment are worth the health benefit. By focusing on spending by disease rather than by service, researchers will be better able to connect expenditures for specific diseases with the associated health outcomes. Tracking disease expenditures also provides a more relevant unit of price for patients, since patients ultimately seek treatment for a disease regardless of the point of service (e.g., physician office, clinic or hospital). This last issue is of particular importance, since researchers have documented several important shifts in treatment (e.g., inpatient hospital to outpatient hospital) that drive a wedge between the price of disease treatment (e.g., cost of treating heart disease) and the price of the service (e.g., an inpatient admission). Moreover, recent payment reforms have shifted payments toward bundled payments that pay for the disease treatment, rather then the component services.

There is general agreement that tracking disease-price inflation is valuable, but there is little concesus regarding how a "disease-price" should be defined and measured. Although several papers look at disease-price growth, they typically focuses on a single disease allocation method (e.g., Dunn et al. (2012), Dunn et al. (2013), Bradley (2013), Cutler and Rosen (2009), and Aizcorbe and Nestoriak (2011)).  Those papers that do compare allocation methods, typically look at the amount allocated to disease categories (Cutler and Rosen (2009), Rosen et al. (2012), and MaCurdy et al. (2008)).  For example, how many dollars are allocated to diabetes or hypertension treatment in 2007? However, this literature does not explore the impact of these approaches on disease-price inflation. Therefore, from current literature, it is difficult to tell how the approach for allocating disease expenditures might affect disease-price growth.  Understanding how these different measures might affect disease-price growth has implications for measuring productivity and inflation in the health sector. To help understand these approaches and their effect on disease-price growth, this paper analyzes these methods for allocating expenditures to diseases using commercial claims data for the years 2003 to 2007.