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Are Medical Prices Declining?

NBER Working Paper No. w5750

56 Pages Posted: 10 Aug 1999 Last revised: 20 Mar 2022

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)

Mark B. McClellan

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

Joseph P. Newhouse

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

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: September 1996

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

Cutler, David M. and McClellan, Mark B. and Newhouse, Joseph P. and Remler, Dahlia, Are Medical Prices Declining? (September 1996). NBER Working Paper No. w5750, Available at SSRN: https://ssrn.com/abstract=5038

David M. Cutler (Contact Author)

Harvard University - Department of Economics ( email )

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Mark B. McClellan

Brookings Institution ( email )

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Joseph P. Newhouse

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

Department of Health Care Policy
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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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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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