Measuring Nursing Home Price Growth between 2000-2009

The proper measurement of inflation in health care is important for policymakers to understand the drivers of price growth. For this reason, the U.S. Bureau of Economic Analysis (BEA) recently released an alternate presentation of inflation for the health care sector that examines prices by disease, such as treatment of diabetes, rather than by place of service, such as a hospital stay. This account does not yet incorporate spending on nursing home care, providing an incomplete picture of inflation in the health care sector. To fill this gap, this paper calculates price indexes by disease for nursing home care for 2000-2009. We find prices in the overall nursing home sector grew at an average annual rate of only 0.9% during the period using these indexes. Price growth was slower for long-term nursing home residents (1.4%) compared to short-term residents (2.8%). Diseases of the circulatory system was the most prevalent disease category, followed by mental illness for long-term residents and diseases of the musculoskeletal system and connective tissue for short-term patients. These three categories of diseases also received the largest allocations of spending, with the bulk going towards patients diagnosed with mental conditions. Overall, nursing home price growth in the 2000s was much slower than for other health care sectors. Incorporating disease-based price indexes for nursing homes into BEA’s new health care account will provide a more comprehensive picture of health care spending trends and inflation.