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Decomposing Medical Care Expenditure Growth

Decomposing Medical Care Expenditure Growth

(p.81) 3 Decomposing Medical Care Expenditure Growth
Measuring and Modeling Health Care Costs
Abe DunnEli LiebmanAdam Hale Shapiro
University of Chicago Press

Medical-care expenditures have been rising rapidly, accounting for almost one-fifth of GDP in 2009. In this study, we assess the sources of the rising medical-care expenditures in the commercial sector. We employ a novel framework for decomposing expenditure growth into four components at the disease level: service price growth, service utilization growth, treated disease prevalence growth, and demographic shift. The decomposition shows that growth in prices and treated prevalence are the primary drivers of medical-care expenditure growth over the 2003 to 2007 period. There was no growth in service utilization at the aggregate level over this period. Price and utilization growth were especially large for the treatment of malignant neoplasms. For many conditions, treated prevalence has shifted towards preventive treatment and away from treatment for late-stage illnesses.

Keywords:   health care spending growth, decomposition, price indexes, treated prevalence, disease-based episodes, episode grouper, price growth

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