Rosen Cutler COI NHA July 2009
Rosen Cutler COI NHA July 2009
Rosen Cutler COI NHA July 2009
OF
APPLICATION
Background: Measuring spending on diseases is critical to assessing the value of medical care.
Objective: To review the current state of cost of illness estimation
methods, identifying their strengths, limitations, and uses. We
briefly describe the current National Health Expenditure Accounts,
and then go on to discuss the addition of cost of illness estimation to
the National Health Expenditure Accounts.
Conclusion: Recommendations are made for future research aimed
at identifying the best methods for developing and using diseasebased national health accounts to optimize the information available
to policy makers as they struggle with difficult resource allocation
decisions.
Key Words: cost of illness, cost allocation, productivity,
efficiency, econometrics, health economics, cost-effectiveness,
health care costs, medical expenditures, research design, national
health accounts
(Med Care 2009;47: S7S13)
Aggregate data on medical spending have been compiled by the Office of the Actuary at the Centers for Medicare
and Medicaid Statistics (CMS) since 1960.19,20 The accounts
track the flow of funds into and out of the health care system,
providing detailed information on payer type (eg, Medicare,
private, out of pocket, etc.) and services purchased (eg,
hospital care, pharmaceuticals, etc.). Table 1 shows a typical
table and its sources and uses matrix, with payers on one
axis and services purchased on the other. The accounts, which
are described in more detail by Heffler and Nuccio,20 impose
a specific set of accounting principles, ensuring that payers
and services add up to the total.
The NHEAs contribute substantially to our understanding of medical spending. Yet they have limitations as well.
Because they focus only on spending, the NHEAs provide no
information on the value of health care spending, as they do
not track the desired output of investment in health care
improved health. Indeed, these tabulations used to be termed
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Public
Type of Expenditure
Total
All
Total
Out-of-Pocket
Private Insurance
Other
Total
Federal
State/Local
Total
Services and supplies
Personal health care
Hospital
Professional services
Physician and clinical
Other professional
Dental
Other pers. health care
Nursing home and home health
Home health
Nursing home
Medical products
Prescription drugs
Other medical products
Durable equipment
Other non-durable
Administration
Public health
Investment
Research
Structures and equipment
$2106
1966
1762
648
660
448
60
92
62
178
53
125
276
217
59
24
36
145
59
139
42
98
$1135
1054
964
286
426
295
40
86
6
60
13
47
193
143
50
16
33
90
81
4
77
$980
980
891
256
388
266
37
86
54
12
42
193
143
50
16
33
89
$257
256
257
21
102
46
15
41
39
6
33
94
48
47
13
33
$723
723
637
235
287
220
22
45
15
6
9
97
95
3
3
89
$155
74
73
29
38
29
3
0
6
6
1
5
81
4
77
$970
912
798
363
234
153
19
6
56
118
40
78
84
74
10
8
2
55
59
58
38
20
$705
664
618
290
176
126
15
3
32
84
30
54
68
58
9
7
2
37
10
41
33
8
$265
248
180
72
58
27
5
2
24
34
10
24
16
15
0
0
19
49
18
5
13
Source: Centers for Medicare and Medicaid Services, Office of the Actuary: Data from the National Health Expenditure Accounts, 2006.
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Cost-of-illness studies have been enormously influential. They have been used to compare the importance of
different diseases, assist in the allocation of research dollars
to specific diseases, provide a basis for policy and planning
activities, and provide an economic framework for program
evaluation.31 The National Institutes of Health have produced
several summaries of cost of disease estimates (1995, 1997,
and 2000),3234 and such estimates have been cited in Congressional testimony, official reports, and other publications.3537 Congress has even expressed interest in using COI
estimates as a measure for allocating research dollars among
the National Institutes of Health38 and Institute of Medicine
panels have recommended their routine production.39
Cost-of-illness studies have their limitations too. Their
methods and resultant cost estimates can vary substantially,
provoking ongoing debate about their usefulness for policy
purposes.1518 The debate, however, often obscures an important distinction between 2 types of cost of illness studies:
disease-specific studies, which measure the cost of a single
disease, and general studies, which allocate total spending to
several diseases. Most COI studies are disease-specific, and it is
to these studies that most COI methodological concerns refer.1518 Perhaps, the biggest issue in disease-specific studies is
the adding-up constraint: it is not entirely clear what costs are
associated with each disease, and how to ensure that all medical
spending is allocated to one and only one disease.
2009 Lippincott Williams & Wilkins
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disease-based national health accounts is identifying individual level data of sufficiently broad scope for linkage to the
NHEA. In the United States, this has proven difficult. Several
recent COI estimates have used AHRQs Medical Expenditure Panel Survey.28 30 However, MEPS underestimates national spending and requires adjustment if it is to match
NHEA totals. In 2002, for example, national cost estimates
from MEPS accounted for less than 70% of NHEA totals
partly due to the MEPS restriction to the noninstitutionalized
population.45 The Medicare Current Beneficiary Survey
(MCBS) collects data on institutionalized Medicare beneficiaries that could be used to supplement MEPS. However,
there is no straightforward way to link these surveys.
Ongoing work by AHRQ and CMS has made great
strides in reconciling MEPS data to the NHEA,45,46 and
additional ongoing work has focused on linking MEPS and
MCBS data for reconciliation to the NHEA.13 These data set
linkages and reconciliations are still progressing, and should
allow better estimates in the near future.
While survey data are appropriate for high prevalence
illnesses such as diabetes and cardiovascular disease, for
lower prevalence conditions (or subgroup analyses), the national surveys suffer from small sample size problems. For
low prevalence conditions, additional data are required, often
in the form of population- or disease-specific registries.
Another option is to combine the power of claims databases
(convenience samples) with the representativeness of household surveys (probability samples), weighting the claims data
to match the representativeness of the household survey.
Claims data have additional drawbacks, however, including
their limited accessibility and being relatively expensive to
obtain.
Once the disease classification schema has been selected, the next step is to attribute spending to diseases. There
are 3 distinct conceptual approaches to attributing medical
costs to diseases, each with different implications for the unit
of analysis The first approach is an encounter-based approach, estimating disease-specific spending by diagnoses
listed on individual medical claims; the unit of analysis is the
encounter (or claim). The second is an episode-based approach, estimating spending on all services considered to be
involved in the diagnosis, management, and treatment of a
specific condition. The unit of analysis is an episode, which
may have variable lengths of time. The third is a personbased approach, identifying all conditions a person has and
then using regression analysis to allocate total spending to
particular diseases.
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Encounter-Based Approach
Most cost of illness studies take an encounter-based
approach,2226,28 30,30a assigning claims to disease buckets
based upon their coded diagnoses. Comorbidities are a major
problem here; attributing each spending item for a patient
who is both hypertensive and diabetic is not easy. The usual
approach is to assign claims based on the primary diagnosis,
but in practice this dilutes the apparent cost impact of many
important risk factors. For example, if a person with diabetes,
2009 Lippincott Williams & Wilkins
Episode-Based Approach
Increasingly, analysts are estimating disease costs using
episode grouperssoftware programs with algorithms that
organize claims data into clinically distinct episodes of care.
A treatment episode can be thought of as a series of temporally contiguous health care services related to the treatment of a given spell of illness or provided in response to
a specific request by the patient or other relevant entity.50
Episodes are natural to examine because they group related
claims regardless of which specific diagnosis is coded on
the claim.
Still, episode-based disease costing faces a number of
challenges. A central issue is how to identify the start and end
point of an episode of treatment, and how to identify the
groups of specific services and costs relating to a particular
episode of care.5154 Episode groupers differ in how they do
this, with no clear consensus on best practice. Comorbidity
and joint cost issues are problematic as well, just as they are
in the encounter approach. Other challenges include how to
handle chronic disease episodes (length is often set arbitrarily
at 1 year), what to do with complications of treatment (assign
to a new episode or an old one), and how to handle medical
treatments that do not fall neatly into a disease category (such
as a screening study). Finally, while a number of different
commercial episode groupers are already widely in use, they
have received little scientific evaluation to date,55 and the
small but growing body of research by CMS56 and others57
points to very real differences in the output of different
vendors groupers. Pending further evaluation and standardization, it will be difficult to use these proprietary algorithms
for public work.
Person-Based Approach
The final approach to cost estimation is the personbased approach. In this approach, a persons total annual
health care spending is regressed on indicators for the set of
2009 Lippincott Williams & Wilkins
DISCUSSION
Timely, reliable, and complete information on medical
spending relative to health is critical for sound policy-making
and planning. As calls for health care cost containment
escalate, the need for such data has never been more apparent.
We describe 1 optionthe development of disease-based
national health accountsfor systematically developing this
knowledge base.
A number of methodological challenges will arise in
implementing disease-based health accounts. We focus
herein on 3 major steps: linking micro spending data with
macro totals; determining a set of diseases for which costs
can be measured; and allocating spending to particular conditions. Each of these steps involves conceptual as well as
applied questions. Further, while some immediate ways to
make progress exist, the difficult and longer term issues of
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ACKNOWLEDGMENTS
The authors thank Stephen Heffler and 2 anonymous
reviewers for helpful comments on an earlier version of this
manuscript.
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