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

Author

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

Abstract

We review in considerable detail the conceptual and measurement issues that underly 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 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.

Suggested Citation

  • Ernst R. Berndt & David M. Cutler & Richard G. Frank & Zvi Griliches & Joseph P. Newhouse & Jack E. Triplett, 1998. "Price Indexes for Medical Care Goods and Services: An Overview of Measurement Issues," Harvard Institute of Economic Research Working Papers 1851, Harvard - Institute of Economic Research.
    • Handle: RePEc:fth:harver:1851
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    1. Lakdawalla, Darius N. & Seabury, Seth A., 2012. "The welfare effects of medical malpractice liability," International Review of Law and Economics, Elsevier, vol. 32(4), pages 356-369.
    2. Clemens Struck & Adnan Velic, 2017. "To Augment Or Not To Augment? A Conjecture On Asymmetric Technical Change," Trinity Economics Papers tep0117, Trinity College Dublin, Department of Economics.
    3. Gianluca Baio & Laura Magazzini & Antonio Nicita & Fabio Pammolli & Massimo Riccaboni, 2003. "Il Decreto DL 15/04/2002, n. 63 sul Contenimento della Spesa Farmaceutica - Impatto sull'Industria e Distorsioni nel Funzionamento del Mercato," Working Papers CERM 0-2003, Competitività, Regole, Mercati (CERM).
    4. Charles Steindel, 1999. "The impact of reduced inflation estimates on real output and productivity growth," Current Issues in Economics and Finance, Federal Reserve Bank of New York, vol. 5(Jun).
    5. Raquel Fonseca & Pierre-Carl Michaud & Titus Galama & Arie Kapteyn, 2021. "Accounting for the Rise of Health Spending and Longevity," Journal of the European Economic Association, European Economic Association, vol. 19(1), pages 536-579.
    6. Vasudeva N. R. Murthy & Natalya Ketenci, 2017. "Is technology still a major driver of health expenditure in the United States? Evidence from cointegration analysis with multiple structural breaks," International Journal of Health Economics and Management, Springer, vol. 17(1), pages 29-50, March.
    7. Raquel Fonseca & François Langot & Pierre-Carl Michaud & Thepthida Sopraseuth, 2020. "Understanding Cross-country Differences in Health Status and Expenditures," NBER Working Papers 26876, National Bureau of Economic Research, Inc.
    8. Schleiniger, Reto, 2014. "Health care cost in Switzerland: Quantity- or price-driven?," Health Policy, Elsevier, vol. 117(1), pages 83-89.
    9. David E. Lebow & Jeremy B. Rudd, 2003. "Measurement Error in the Consumer Price Index: Where Do We Stand?," Journal of Economic Literature, American Economic Association, vol. 41(1), pages 159-201, March.
    10. David E. Lebow & Jeremy B. Rudd, 2001. "Measurement error in the consumer price index: where do we stand?," Finance and Economics Discussion Series 2001-61, Board of Governors of the Federal Reserve System (U.S.).
    11. Aizcorbe, Ana & Nestoriak, Nicole, 2011. "Changing mix of medical care services: Stylized facts and implications for price indexes," Journal of Health Economics, Elsevier, vol. 30(3), pages 568-574, May.
    12. Andrew Sharpe & Celeste Bradley & Hans Messinger, 2007. "The Measurement of Output and Productivity in the Health Care Sector in Canada: An Overview," CSLS Research Reports 2007-06, Centre for the Study of Living Standards.
    13. Feldman, Maria & Pretnar, Nick, 2023. "The Causal Factors Driving the Rise in U.S. Health-services Prices," MPRA Paper 118169, University Library of Munich, Germany.
    14. Chris Bojke & Adriana Castelli & Andrew Street & Padraic Ward & Mauro Laudicella, 2013. "Regional Variation In The Productivity Of The English National Health Service," Health Economics, John Wiley & Sons, Ltd., vol. 22(2), pages 194-211, February.
    15. Andrés Maroto-Sánchez, 2010. "Productivity in the services sector: conventional and current explanations," The Service Industries Journal, Taylor & Francis Journals, vol. 32(5), pages 719-746, October.
    16. Paul Schreyer & Matilde Mas, 2016. "Measuring Health Services in the National Accounts: An International Perspective," NBER Chapters, in: Measuring and Modeling Health Care Costs, pages 25-52, National Bureau of Economic Research, Inc.
    17. Martha A. Starr & Forrest R. McCluer, 2014. "Prices and Quantities in Health Care Antitrust Damages," Working Papers 2014-03, American University, Department of Economics.
    18. Struck, Clemens C., 2022. "Wealth, price levels, and product quality," International Economics, Elsevier, vol. 170(C), pages 32-48.

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    • I1 - Health, Education, and Welfare - - Health
    • C8 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs

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