Health Care Cost Growth among the Privately
Insured
Presented by Kate Bundorf
Collaborators: Anne Royalty and Loren Baker
2009 AcademyHealth Annual Research Meeting
Thanks to the RWJF-HCFO initiative for funding and to Shoutzu Lin
for excellent research assistance.
1
Study Objective
• Measure the contributions of changes in prices of services
and changes in quantities of services to health care cost
growth among the privately insured between 2001 and
2006.
2
Relationship with Cost Growth Literature
• More detailed evidence than “residual” studies which
attribute long term cost growth primarily to
technological change (Newhouse 1992).
• Provide a broader perspective than studies of particular
diseases or technologies (e.g. Chernew, Hirth et al. 1998;
Cutler and McClellan, 2001; Baker, Birnbaum et al.,
2003).
• Examine a broader set of service types (inpatient,
outpatient and pharmaceuticals) and a different
population than existing price-quantity decomposition
studies (e.g. CBO 2006).
3
Data Source and Study Sample
• MarketScan Commercial Claims and Encounters Database
– Medical care claims for large, self-insured employers
• Sample
– 8 firms that submitted data in both 2001 and 2006 and did
not offer a capitated (HMO) plan in either year.
– Include active full- or part-time workers and their
dependents under 65 years of age who were enrolled for
the entire year and not covered by Medicare.
– 663,307 enrollees in 2001 and 607,030 in 2006
• Sample not nationally representative of the privatelyinsured population, but…
– Age distribution very similar to same MEPS population.
– Cost growth per capita for the time period nearly identical
in our data and the MEPS for similar population
4
Measuring Quantity and Price
• Quantity
– Outpatient procedures classified by CPT codes.
– Inpatient admissions classified by DRGs.
– Pharmaceuticals classified by National Drug Codes (NDCs).
• 10 digit number identifying manufacturer/distributor,
products, and package.
• Price
– Gross covered payments
• Includes payments made to provider by the patient (copays
and coinsurance) and the insurer for covered services.
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Decomposition Method
• Change in per capita expenditures between years t and t+n
decomposed into change in price holding quantity constant
and change in quantity holding price constant:
∑
I
pi ,t + n qi ,t + n −∑ I pi ,t qi ,t = ∑ I qi ,t ∆ pi + ∑ I pi ,t + n ∆qi
– Where pit is the mean price of a procedure i at time t and
qit is the per capita utilization rate
• The proportion of cost growth due to changes in prices is:
∑ I q i ,t ∆ p i
∑
I
p i ,t + n q i ,t + n − ∑ I p i ,t q i ,t
• The proportion of cost growth due to changes in quantities is:
∑I pi,t +n ∆qi
∑
I
p i ,t + n q i ,t + n − ∑ I p i ,t q i ,t
6
Trends in Real Spending per Enrollee
2001
($2006)
Total
Inpatient Services
Outpatient Services
Pharmaceuticals
2006
% Change
Average
Annual
Growth
Rate
$3,047
$3,451
13.2%
2.6%
$775
$747
-3.6%
-0.7%
$1,617
$1,894
17.1%
3.4%
$656
$810
23.6%
4.7%
7
Quantity Change=(Q2006-Q2001)*P2006
Price Change=(P2006-P2001)*Q2001
8
Quantity Change=(Q2006-Q2001)*P2006
Price Change=(P2006-P2001)*Q2001
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Outpatient Expenditures – Quantity Changes
• Treatment intensity versus treatment expansion
– Percent of enrollees receiving at least one procedure
increased from 77% to 80%.
– Number of procedures among those with at least one
procedure increased from 12.75 to 14.29.
• Old versus new technologies
– 65% of the growth in quantity due to increased utilization
of existing procedures.
– 35% due to the utilization of new procedures.
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Pharmaceuticals – Quantity Changes
• Proportion of the population with at least one claim for a
branded drug declined by 8.5 pct points
• Proportion of the population with at least one claim for a
generic drug rose by 8.6 pct points
• Number of claims for branded drugs per enrollee with at
least one claim declined by 1.7.
• Number of claims for generic drugs per enrollee with at
least one claim increased by 1.7.
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Summary of Findings
• Spending growth was concentrated in outpatient services
and pharmaceuticals; inpatient spending declined
slightly.
• Growth in outpatient spending was due almost entirely to
increases in the quantity of procedures.
– This was consistent across different types of providers
• Growth in pharmaceutical spending was driven by both
rising prices and increasing quantities.
– For branded drugs, spending growth was driven by price
increases; quantity per enrollee declined.
– For generic drugs, spending growth was driven by quantity
increases; price per drug declined.
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Implications
• Efforts to control costs in the under 65 population should
focus on outpatient and pharmaceutical spending.
– For outpatient spending, need to address the quantity of
services.
• Episode-based payments might be useful in this setting.
– For branded drugs, need to address rising prices.
• Even further use of benefit designs that make consumers
price sensitive.
– For generic drugs, need to address quantities.
• Need further analysis of the extent to which increased
utilization is substitution from more expensive branded drugs.
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