Frequently asked questions
Deflator
Which deflator is most commonly used by countries?
In theory, the choice of deflator to be used to compare expenditure amounts over time depends on the nature of the question that the analysis seeks to illuminate. For example, if one were interested in tracking changes in the volume of household purchases of over-the-counter (OTC, or non-prescription) medications, then a price index or deflator specific for OTC products would be most appropriate. However, if the interest were in tracking changes in national health spending relative to purchasing power in the whole economy, the GDP deflator would be most appropriate.
In practice, usage differs from country to country. Probably, the GDP deflator is most commonly used; most middle- and lower-income countries do not have a very reliable health price index. In Health at a Glance 2003 (published by the OECD), due to limited availability of reliable health price indices, an economy-wide (GDP) price index was used in order to compare growth rates of OECD countries over time and across countries. (It should be noted that the limitation of this methods was also emphasized in the publication.)
The practice of OECD countries varies. For example, Canada calculates “constant dollar expenditure” using price indices for public and private expenditure separately. Implicit price indices (IPI) for government current expenditure are used to deflate public sector health spending, and the health component of the Consumer Price Index (CPI) are used to deflate private sector health care spending. Adjusted values of public and private expenditure are summed to obtain Canada totals at constant dollar values.
Statistics Norway developed a method for calculating volume indices (volume indices for inpatient care were calculated based on DRGs, and for out-patient care based on number of visits by specialists); and constant price values of health care and price indices were calculated by using volume indexes.
Statistics Netherlands creates an average price for the goods and services offered for every actor in the health care system (as much as possible in accordance with new EU regulations on price deflation, which means output oriented). Expenditure in real prices (measurement of quantity) is derived from this price level.
A “quantity produced” measure is created In case of government providers, and the "price" for the goods and services is derived from this. In case no information on prices or quantities is available or cannot be derived in a reliable way, the CPI is used as a general deflator for the actor in question.
Kenya is a developing country example in which the health component of the CPI has been used to deflate out of pocket expenditures for purchase of services at traditional healers.
In summary, there is no clear answer to this question. Which set of measures to use depends upon the nature of the question asked and the types of price or quantity information available. Health accountants are encouraged to seek guidance from economic statistics authorities in the country on the most appropriate and reliable measure.