Dening Disease Episodes and the E¤ects on the Components of Expenditure Growth

To better understand productivity and in‡ation in the health sector, health economists have advocated tracking the cost of treatment by disease over time. However, there are several methods for measuring the cost of treatment, and little work has been done to understand how di¤erent approaches a¤ect disease-price in‡ation. In this paper we compare various methodologies for allocating expenditures to disease episodes and their e¤ect on disease-price in‡ation for a sample of commercially-insured individuals over the 2003 to 2007 period. We …nd that the selected allocation method impacts in‡ation rates, but the annual growth rate stays within the range 2.9 to 3.9 across a variety of methods. The paper highlights various issues and trade-o¤s that may be useful when selecting among the di¤erent approaches. The views expressed in this paper are solely those of the authors and do not necessarily re‡ect the views of the Bureau of Economic Analysis, the Federal Reserve Bank of San Francisco, or the Board of Governors of the Federal Reserve System.