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Pricing Heart Attack Treatments

In: Medical Care Output and Productivity

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

Abstract

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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Suggested Citation

  • David M. Cutler & Mark B. McClellan & Joseph P. Newhouse & Dahlia K. Remler, 2001. "Pricing Heart Attack Treatments," NBER Chapters,in: Medical Care Output and Productivity, pages 305-362 National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberch:7634
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    References listed on IDEAS

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    1. Fisher, Franklin M. & Shell, Karl, 1972. "The Economic Theory of Price Indices," Elsevier Monographs, Elsevier, edition 1, number 9780122577505 edited by Shell, Karl.
    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. Zvi Griliches, 1992. "Output Measurement in the Service Sectors," NBER Books, National Bureau of Economic Research, Inc, number gril92-1, July.
    4. 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.
    5. 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.
    6. 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 106-111, May.
    7. 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.
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    Citations

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    Cited by:

    1. Ernst R. Berndt & David M. Cutler & Richard Frank & Zvi Griliches & Joseph P. Newhouse & Jack E. Triplett, 2001. "Price Indexes for Medical Care Goods and Services -- An Overview of Measurement Issues," NBER Chapters,in: Medical Care Output and Productivity, pages 141-200 National Bureau of Economic Research, Inc.
    2. Carl A. Johnston & Interdisciplinary Center for Economic Science, 2006. "Agent-based Investigation of Price Inflation In Health Insurance," Computing in Economics and Finance 2006 155, Society for Computational Economics.
    3. Horwitz, Jill R. & Nichols, Austin, 2009. "Hospital ownership and medical services: Market mix, spillover effects, and nonprofit objectives," Journal of Health Economics, Elsevier, vol. 28(5), pages 924-937, September.
    4. Matthew D. Shapiro & Irving Shapiro & David W. Wilcox, 1999. "Quality Improvement in Health Care: A Framework for Price and Output Measurement," American Economic Review, American Economic Association, vol. 89(2), pages 333-337, May.
    5. Diane Dawson & Hugh Gravelle & Mary O'Mahony & Andrew Street & Martin Weale & Adriana Castelli & Rowena Jacobs & Paul Kind & Pete Loveridge & Stephen Martin & Philip Stevens & Lucy Stokes, 2005. "Developing new approaches to measuring NHS outputs and productivity," Working Papers 006cherp, Centre for Health Economics, University of York, revised Dec 2005.
    6. Driouchi, Ahmed, 2015. "New Health Technologies and Health Workforce in Developing Economies," MPRA Paper 67775, University Library of Munich, Germany.
    7. Ralph Kozlow, 2000. "International Accounts Data Needs: Plans, Progress, and Priorities," BEA Papers 0009, Bureau of Economic Analysis.
    8. David E. Lebow & Jeremy B. Rudd, 2001. "Measurement error in the consumer price index: where do we stand?," Finance and Economics Discussion Series 2001-61, Board of Governors of the Federal Reserve System (U.S.).
    9. Adriana Castelli & Peter C Smith, 2006. "Circulatory Disease in the NHS: Measuring Trends in Hospital Costs and Output," Working Papers 021cherp, Centre for Health Economics, University of York.
    10. Robert J. Gordon, 2000. "The Boskin Commission Report and its Aftermath," NBER Working Papers 7759, National Bureau of Economic Research, Inc.
    11. Aizcorbe, Ana & Nestoriak, Nicole, 2011. "Changing mix of medical care services: Stylized facts and implications for price indexes," Journal of Health Economics, Elsevier, vol. 30(3), pages 568-574, May.
    12. Andrew Sharpe & Celeste Bradley & Hans Messinger, 2007. "The Measurement of Output and Productivity in the Health Care Sector in Canada: An Overview," CSLS Research Reports 2007-06, Centre for the Study of Living Standards.
    13. Jill R. Horwitz, 2005. "Does Corporate Ownership Matter? Service Provision in the Hospital Industry," NBER Working Papers 11376, National Bureau of Economic Research, Inc.
    14. Jill R. Horwitz & Austin Nichols, 2007. "What Do Nonprofits Maximize? Nonprofit Hospital Service Provision and Market Ownership Mix," NBER Working Papers 13246, National Bureau of Economic Research, Inc.
    15. Jonathan S. Skinner & Elliott S. Fisher & John Wennberg, 2005. "The Efficiency of Medicare," NBER Chapters,in: Analyses in the Economics of Aging, pages 129-160 National Bureau of Economic Research, Inc.

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