National and International Perspectives∗

The break down of change in total expenditure in health care services into change in price level and change in output level is an important policy tool for analysing total spending over time and for the purpose of international comparison. The current cost-based approach in measuring health care output does not allow this price and output decomposition. In this paper we discuss various approaches in direct output measurement and propose an episode based approach with quality adjustment which closely resembles the concept of output in the system of national accounts. This episode-based approach uses courses of treatment for each Case Mix Group and Day Procedure Group as the basis for output. Using data from the Canadian Institute for Health Information, we calculate an episode-based output index of the Canadian hospital sector for the periods 1996–2000 and 2003–2005. The result for the chained Fisher index shows that the quality-unadjusted index increases at an average annual growth rate of 1.3%. We expect that with the quality adjustment the actual rate is higher. We also offer recommendations for the implementation of quality adjustment and the establishment of