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Price Indexes for Medical Care Goods and Services: An Overview of Measurement Issues

  • Ernst R. Berndt
  • David M. Cutler
  • Richard G. Frank
  • Zvi Griliches
  • Joseph P. Newhouse

We review in considerable detail the conceptual and measurement issues that underlie construction of medical care price indexes in the U.S., particularly the medical care consumer price indexes (MCPIs) and medical-related producer price indexes (MPPIs). We outline salient features of the medical care marketplace, including the impacts of insurance, moral hazard, principal-agent relationships, technological progress and organizational changes. Since observed data are unlikely to correspond with efficient outcomes, we discuss implications of the failure of transactions data in this market to reveal reliable marginal valuations, and the consequent need to augment traditional transactions data with information based on cost-effectiveness and outcomes studies. We describe procedures currently used by the BLS in constructing MCPIs and MPPIs, including recent revisions, and then consider alternative notions of medical care output pricing that involve the price or cost of an episode of treatment, rather than prices of fixed bundles of inputs. We outline features of a proposed new experimental price index -- a medical care expenditure price index -- that is more suitable for evaluation and analyses of medical care cost changes, than are the current MCPIs and MPPIs. We conclude by suggesting future research and measurement issues that are most likely to be fruitful.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 6817.

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Date of creation: Nov 1998
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Publication status: published as Cutler, David and Ernst R. Berndt (eds.) Medical Output and Productivity. Chicago: University of Chicago Press for the National Bureau of Economic Research, 2001.
Handle: RePEc:nbr:nberwo:6817
Note: HC PR
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  1. Berndt, Ernst R & Griliches, Zvi & Rosett, Joshua G, 1993. "Auditing the Producer Price Index: Micro Evidence from Prescription Pharamceutical Preparations," Journal of Business & Economic Statistics, American Statistical Association, vol. 11(3), pages 251-64, July.
  2. Michael J. Boskin, 1998. "Consumer Prices, the Consumer Price Index, and the Cost of Living," Journal of Economic Perspectives, American Economic Association, vol. 12(1), pages 3-26, Winter.
  3. 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.
  4. 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.
  5. Feldstein, Martin S, 1970. "The Rising Price of Physicians' Services," The Review of Economics and Statistics, MIT Press, vol. 52(2), pages 121-33, May.
  6. Berndt, Ernst R. & Cutler, David M. & Frank, Richard G. & Griliches, Zvi & Newhouse, Joseph P. & Triplett, Jack E., 2000. "Medical care prices and output," Handbook of Health Economics, in: A. J. Culyer & J. P. Newhouse (ed.), Handbook of Health Economics, edition 1, volume 1, chapter 3, pages 119-180 Elsevier.
  7. Fisher, Franklin M & Griliches, Zvi, 1995. "Aggregate Price Indices, New Goods, and Generics," The Quarterly Journal of Economics, MIT Press, vol. 110(1), pages 229-44, February.
  8. Randall P. Ellis, 2012. "risk adjustment," The New Palgrave Dictionary of Economics, Palgrave Macmillan.
  9. Ernst R. Berndt & Susan H. Busch & Richard G. Frank, 1998. "Price Indexes for Acute Phase Treatment of Depression," NBER Working Papers 6799, National Bureau of Economic Research, Inc.
  10. 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.
  11. Iain M. Cockburn & Aslam H. Anis, 2001. "Hedonic Analysis of Arthritis Drugs," NBER Chapters, in: Medical Care Output and Productivity, pages 439-462 National Bureau of Economic Research, Inc.
  12. F. M. Fisher & K. Shell, 1970. "The Pure Theory of the National-Output Deflator," Working papers 59, Massachusetts Institute of Technology (MIT), Department of Economics.
  13. Robert B. Archibald, 1977. "On the Theory of Industrial Price Measurement Output Price Indexes," NBER Chapters, in: Annals of Economic and Social Measurement, Volume 6, number 1, pages 57-72 National Bureau of Economic Research, Inc.
  14. Timothy F. Bresnahan & Robert J. Gordon, 1996. "The Economics of New Goods," NBER Books, National Bureau of Economic Research, Inc, number bres96-1, October.
  15. Katharine G. Abraham & John S. Greenlees & Brent R. Moulton, 1998. "Working to Improve the Consumer Price Index," Journal of Economic Perspectives, American Economic Association, vol. 12(1), pages 27-36, Winter.
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