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Are Medical Prices Declining?

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

Abstract

We address long-standing problems in measuring health care prices by estimating two medical care price indices. The first, a Service Price Index, prices specific medical services, as does the current CPI. The second, a Cost of Living Index, measures the net valuation of treating a health problem. We apply these indices to heart attack treatment between 1983 and 1994. Because of technological change and increasing price discounts, the current CPI overstates a chain-weighted price index by three percentage points annually. For plausible values of an additional life-year, the real Cost of Living Index fell about 1 percent annually.

Suggested Citation

  • David M. Cutler & Mark McClellan & Joseph P. Newhouse & Dahlia Remler, 1996. "Are Medical Prices Declining?," NBER Working Papers 5750, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:5750
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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, January.
    2. 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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