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Are Medical Care Prices Still Declining? A Systematic Examination of Quality-Adjusted Price Index Alternatives for Medical Care

Author

Listed:
  • Seidu Dauda
  • Abe C. Dunn
  • Anne E. Hall

    (Bureau of Economic Analysis)

Abstract

More than two decades ago a well-known study provided evidence from heart attack treatments suggesting that prices in medical care were actually declining, when appropriately adjusted for quality. Our paper revisits this subject looking at a large number of conditions and more recent and more comprehensive data sources to compare alternative methods of quality adjustment. A method based on utility theory produces the most robust and accurate results, while the alternative methods used in recent work overstate inflation. Based on claims data for three medical conditions as well as data on medical innovations from over 7,000 cost-effectiveness studies spanning all major condition categories and types of treatment, we find that, when properly adjusted for quality, declining prices from innovation are a prevalent feature of this sector. These findings have important implications for the measurement of medical care output and productivity.

Suggested Citation

  • Seidu Dauda & Abe C. Dunn & Anne E. Hall, 2019. "Are Medical Care Prices Still Declining? A Systematic Examination of Quality-Adjusted Price Index Alternatives for Medical Care," BEA Working Papers 0166, Bureau of Economic Analysis.
    • Handle: RePEc:bea:wpaper:0166
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    References listed on IDEAS

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    3. David M. Cutler & Kaushik Ghosh & Kassandra Messer & Trivellore Raghunathan & Allison B. Rosen & Susan T. Stewart, 2020. "A Satellite Account for Health in the United States," NBER Working Papers 27848, National Bureau of Economic Research, Inc.
    4. Karen Eggleston & Brian K. Chen & Chih-Hung Chen & Ying Isabel Chen & Talitha Feenstra & Toshiaki Iizuka & Janet Tin Kei Lam & Gabriel M. Leung & Jui-fen Rachel Lu & Beatriz Rodriguez-Sanchez & Jeroen, 2020. "Are quality-adjusted medical prices declining for chronic disease? Evidence from diabetes care in four health systems," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 21(5), pages 689-702, July.

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    JEL classification:

    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General

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