Everything seems to be getting more and more expensive. But are medical prices falling? Cutler et al. (1998) found in the seminal paper that “Have medicine prices dropped?Evidence for heart attack treatment“While unadjusted health care prices are actually rising, quality-adjusted health care costs are actually falling. In my own research, Lakdawalla et al. (2015), I found that while the price of cancer treatment On the rise, quality-adjusted care costs are flat or even falling. For example, these quality-adjusted prices are saying, while the price of a cell phone has risen over time; considering quality (e.g., processing speed, memory) , the quality-adjusted price dropped significantly.
A key question then is, how do you calculate a quality-adjusted medical price index?a working document Total, Dunn and Hall (2020)– also published here– designed to answer this question.
A common concept is that when measuring the cost of “health care”, health care should be determined as the total medical expenditure for the treatment of a disease (acute or chronic), rather than the price of individual services. For example, the price of treating acute myocardial infarction (AMI) should be the full price of the treatment, not a change in the individual inputs used in AMI; the reason is that the composition of these inputs may change over time, especially in the case of major innovations. health field.
Dauda, Dunn, and Hall (2020) then propose 4 methods to measure quality-adjusted price:
Utilities-Based Cost of Living Index (COLI). This approach follows Cutler et al. (1998) and is the author’s benchmark method. The method assigns a value to the quality change based on the dollar value of the marginal quality change to the consumer. The formula to calculate this is:
Applied to health, this becomes:
Treatment Endpoint (TE) Index. The index measures the price per unit of health that a treatment produces.In the formula below, this is the cost per unit of output, where σt Measured as the rate of achieving successful treatment endpoints. Health units can be various clinical treatment endpoints as well as quality-adjusted life years – as used in many European countries using Health Technology Assessment (HTA). The authors note that this approach is consistent with the baseline COLI approach only if there is a linear relationship between the health produced and the dollars spent on treatment. This approach assumes that individuals can buy many years of healthy life at a constant average price, but the authors argue that the marginal quality-adjusted price of health care is higher than the average price because the return on health spending can be diminishing (eg, letting a person live from age 70 to It’s easier to get to 75 than to let them live from 100 to 105). The difference between the COLI and TE methods is greater when the marginal utility of health gains is not linear; this is a key assumption of the GRACE model.
hedonic index. In the hedonic index, aims to estimate the relative value of different attributes of a given good or service.if we let G() is the hedonic function of the value of a medical good or service over a period of time Ton (mt), the hedonic adjustment for period 1 is g0(m0)-g1(m0), which is the dollar value spent in period 0 minus the cost of purchasing period 0 treatment in period 1.The hedonic price index can then be calculated as g1(m0)/S0, which is the cost of purchasing Phase 0 treatment in Phase 1 divided by the spending level in Phase 0. The authors point out that the hedonic index is the upper bound of the COLI method. Furthermore, the hedonic index faces many challenges, such as (i) it may not take into account the full variation in utility, especially in innovative markets, (ii) attribute selection methods may be challenging, different attribute selections may lead to different outcomes, and (iii) Hedonic adjustment may be violated, as inefficient techniques that do not increase social welfare may be employed.
Resource indexing cost. The index looks at cost changes that produce quality changes. In this framework, the quality adjustment term is based on the opportunity cost (measured by marginal revenue) of investing additional resources to improve health rather than producing additional unit-denominated goods.
The authors also used (i) claims data to study three acute illnesses: acute myocardial infarction (AMI), congestive heart failure (CHF), and pneumonia in FFS Medicare patients from 2001-2014, and data from Tufts University, on These methods were empirically tested in the Healthcare Cost-Effective Analysis Registry (CEAR) database.
Their results are summarized as follows:
We found substantial declines in quality-adjusted prices associated with therapeutic innovation. To incorporate these quality-adjusted indices into an overall measure of inflation, we combined unadjusted healthcare price indices, quality-adjusted price indices of therapeutic innovation, and proxies for new technology diffusion rates. While official statistics show that from 2000 to 2017, health care prices rose by 0.53% per year relative to overall economic inflation, while we found that quality-adjusted health care prices fell by 1.33% per year during the same period.
thanks Jeremy Nighorson, who presented the paper at the monthly CHEP Learning Network meeting. However, any errors in the interpretation of this article are my own.
