Interpreting Changes in Mental Health Expenditures: Minding Our Ps and Qs.

• Author: Berndt, Ernst R.

Richard G. Frank [*]

Interpreting growth trends in mental health spending can be puzzling. When mental health spending grows more rapidly than other health expenditures, is it because of provider price inflation? When mental health spending grows less rapidly than other health expenditures, is it because the mental health needs of our population increasingly are not being met?

A first step toward interpreting changes in mental health spending properly involves decomposing these expenditures into Ps and Qs: prices and quantities. But measuring the quantity of real output in the health care sector, particularly in mental health services, is complicated for a number of reasons. For example, questions about the effectiveness of treatments and the welfare losses from moral hazard in insurance have long created concern that the value of spending on mental health may be low relative to spending on other health services. Mental disorders frequently are chronic and recurring conditions, and mortality is not typically an appropriate measure of treatment outcome. Defining outcomes from various mental health treatments often relies on more subjective and difficult-to-measure constructs. Therefore, creating price indexes that account for the changing quality and effectiveness of mental health treatments poses significant measurement issues.

Initial Methodology and Data

For some time, health economists have suggested that an appropriate treatment price index would be one based on defined episodes of treatment of selected illnesses and conditions. It would incorporate technological and institutional innovations that change the mix of inputs to treat the condition and would include any effects on changed medical outcomes. Anne A. Scitovsky was the first to implement this type of approach in 1967. She examined changes in the costs of treating episodes for six specific medical conditions at the Palo Alto Medical Research Foundation between 1951 and 1965. [1] In the health-related producer price indexes (PPIs) constructed and published by the Bureau of Labor Statistics (BLS), by contrast, variations in treatment outcomes are not taken into account, nor are major treatment substitutions, for example between pharmacotherapy and psychotherapy.

Over the last four years, we have undertaken a research program at the NBER that builds on the treatment episode tradition begun by Scitovsky and extends it to the most prevalent and costly of the mental disorders, major depression. We report here on how this research has progressed and how findings have evolved as we developed more refined measures of treatment episodes and outcomes.

In the past two decades, new treatment technologies have been introduced, indicating the potential for changes in outcomes in treatment for depression. Treatment input patterns have shifted within treatment classes (for example, from older to more recently developed pharmacotherapies, particularly the selective serotonin reuptake inhibitors, or SSRIs) and between treatment classes (for example, to less intensive psychotherapy and more intensive pharmacotherapy). Fundamental organizational changes, such as the growth of managed care and specialty mental health and pharmacy "carve-outs," also may have affected prices of and treatment choices for depression.

In our work, we use quantities and prices of outpatient treatment for depression that are based on retrospective medical claims data from MedStat's publicly available MarketScan [TM] database. These data consist of 1991-6 enrollment records and medical claims from four large self-insured...