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Are Medical Prices Declining? Evidence from Heart Attack Treatments

David M. Cutler, Mark McClellan, Joseph P. Newhouse and Dahlia Remler
The Quarterly Journal of Economics
Vol. 113, No. 4 (Nov., 1998), pp. 991-1024
Published by: Oxford University Press
Stable URL: http://www.jstor.org/stable/2586972
Page Count: 34
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Are Medical Prices Declining? Evidence from Heart Attack Treatments
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Abstract

We address long-standing problems in measuring medical inflation by estimating two types of 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 a quality-adjusted cost of treating a health problem. We apply these indices to heart attack treatment between 1983 and 1994. More frequent reweighting and accounting for price discounts lowers the measured price change for heart attacks by three percentage points annually. Accounting for quality change lowers it further; we estimate that the real Cost of Living Index fell about 1 percent annually.

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