Pricing Heart Attack Treatments

71 Pages Posted: 28 May 1999 Last revised: 5 May 2000

See all articles by David M. Cutler

David M. Cutler

Harvard University - Department of Economics; National Bureau of Economic Research (NBER); Harvard University - Harvard Kennedy School (HKS)

Joseph P. Newhouse

Harvard Medical School; Harvard Kennedy School (HKS); National Bureau of Economic Research (NBER); Harvard University - Harvard Kennedy School (HKS)

Mark B. McClellan

Brookings Institution; Council of Economic Advisors; National Bureau of Economic Research (NBER)

Dahlia Remler

City University of New York - Baruch College - Marxe School of Public and International Affairs; National Bureau of Economic Research (NBER); CUNY The Graduate Center - Department of Economics

Date Written: April 1999

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.

Suggested Citation

Cutler, David M. and Newhouse, Joseph P. and McClellan, Mark B. and Remler, Dahlia, Pricing Heart Attack Treatments (April 1999). NBER Working Paper No. w7089. Available at SSRN: https://ssrn.com/abstract=162970

David M. Cutler (Contact Author)

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Joseph P. Newhouse

Harvard Medical School; Harvard Kennedy School (HKS) ( email )

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National Bureau of Economic Research (NBER)

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Harvard University - Harvard Kennedy School (HKS) ( email )

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Mark B. McClellan

Brookings Institution ( email )

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Dahlia Remler

City University of New York - Baruch College - Marxe School of Public and International Affairs ( email )

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National Bureau of Economic Research (NBER) ( email )

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