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

Posted: 26 Jul 2000

See all articles by Ernst R. Berndt

Ernst R. Berndt

Massachusetts Institute of Technology (MIT) - Sloan School of Management; National Bureau of Economic Research (NBER)

David M. Cutler

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

Richard G. Frank

Harvard Medical School; National Bureau of Economic Research (NBER)

Zvi Griliches

(Deceased)

Joseph P. Newhouse

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

Jack E. Triplett

The Brookings Institute

Multiple version iconThere are 2 versions of this paper

Abstract

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.

JEL Classification: I1, C8

Suggested Citation

Berndt, Ernst R. and Cutler, David M. and Frank, Richard G. and Griliches, Zvi and Newhouse, Joseph P. and Triplett, Jack E., Price Indexes for Medical Care Goods and Services: An Overview of Measurement Issues. Harvard Institute of Economic Research Paper No. 1851. Available at SSRN: https://ssrn.com/abstract=237446

Ernst R. Berndt (Contact Author)

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

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David M. Cutler

Harvard University - Department of Economics ( email )

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National Bureau of Economic Research (NBER) ( email )

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

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Richard G. Frank

Harvard Medical School ( email )

Department of Health Care Policy
Boston, MA 02115
United States
617-432-0178 (Phone)
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National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
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United States

Zvi Griliches

(Deceased)

Joseph P. Newhouse

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

Department of Health Care Policy
Boston, MA 02115
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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

79 John F. Kennedy Street
Cambridge, MA 02138
United States

Jack E. Triplett

The Brookings Institute ( email )

1775 Massachusetts Ave. NW
Economic Studies
Washington, DC 20036-2188
United States

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