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Pricing Heart Attack Treatments

In: Medical Care Output and Productivity

  • David M. Cutler
  • Mark B. McClellan
  • Joseph P. Newhouse
  • Dahlia K. Remler

In this paper, we estimate price indices for heart attack treatments, demonstrating the techniques that are currently used in official price indices and presenting some alternatives. We consider two types of price indices, a Service Price Index, which prices specific treatments provided, and a Cost of Living Index, which prices the health outcomes of patients. Both indices are complicated by price measurement issues: list prices and transactions prices are fundamentally different in the medical care field. The development of new or modified medical treatments further complicates the comparison of like' goods over time. And the Cost of Living Index is hampered by the need to determine how much of health improvement results from medical treatments in comparison to other factors. We describe methods to address each of these obstacles. We conclude that whereas traditional price indices when applied to heart attack treatments are rising at roughly 3 percent per year above general inflation, a corrected service price index is rising at perhaps 1 to 2 percent per year above general inflation, and the cost of living index is falling by 1 to 2 percent per year relative to general inflation. We discuss the implications of these results for official price index calculations.

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This chapter was published in:
  • David M. Cutler & Ernst R. Berndt, 2001. "Medical Care Output and Productivity," NBER Books, National Bureau of Economic Research, Inc, number cutl01-1, September.
  • This item is provided by National Bureau of Economic Research, Inc in its series NBER Chapters with number 7634.
    Handle: RePEc:nbr:nberch:7634
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    National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.

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    1. Zvi Griliches, 1992. "Output Measurement in the Service Sectors," NBER Books, National Bureau of Economic Research, Inc, number gril92-1, September.
    2. Franklin M. Fisher & Zvi Griliches, 1995. "Aggregate Price Indices, New Goods, and Generics," The Quarterly Journal of Economics, Oxford University Press, vol. 110(1), pages 229-244.
    3. David M. Cutler & Mark McClellan & Joseph P. Newhouse & Dahlia Remler, 1998. "Are Medical Prices Declining? Evidence from Heart Attack Treatments," The Quarterly Journal of Economics, Oxford University Press, vol. 113(4), pages 991-1024.
    4. Berndt, Ernst R. & Fuss, Melvyn A., 1986. "Productivity measurement with adjustments for variations in capacity utilization and other forms of temporary equilibrium," Journal of Econometrics, Elsevier, vol. 33(1-2), pages 7-29.
    5. Frank, Richard G & Busch, Susan H & Berndt, Ernst R, 1998. "Measuring Prices and Quantities of Treatment for Depression," American Economic Review, American Economic Association, vol. 88(2), pages 106-11, May.
    6. Paul A. Armknecht & Daniel H. Ginsburg, 1992. "Improvements in Measuring Price Changes in Consumer Services: Past, Present, and Future," NBER Chapters, in: Output Measurement in the Service Sectors, pages 109-157 National Bureau of Economic Research, Inc.
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