Working Paper: NBER ID: w5750
Authors: 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.
Keywords: Medical Prices; Health Care Economics; Price Indices; Heart Attack Treatment
JEL Codes: I11; I18
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Consumer Price Index (CPI) for medical care (I11) | price of other goods (E39) |
| CPI overstates true price increase (E31) | changes in service quality and complexity of medical pricing systems (I11) |
| real cost of living index for treating heart attacks (I11) | perceived inflation in medical prices (E31) |
| technological change and price discounts (O33) | cost of living index (C82) |
| current price indices (C43) | real costs associated with heart attack treatment (I11) |