Are Medical Prices Declining?

Abstract

ABSTMCTWe 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.

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