Are Medical Care Prices Still Declining? A Re‐Examination Based on Cost‐Effectiveness Studies

Abe Dunn, Anne Hall and Seidu Dauda

Econometrica, 2022, vol. 90, issue 2, 859-886

Abstract: More than two decades ago, a well‐known study on heart attack treatments provided evidence suggesting that, when appropriately adjusted for quality, medical care prices were actually declining (Cutler, McClellan, Newhouse, and Remler (1998)). Our paper revisits this subject by leveraging estimates from more than 8000 cost‐effectiveness studies across a broad range of conditions and treatments. We find large quality‐adjusted price declines associated with treatment innovations. To incorporate these quality‐adjusted indexes into an aggregate measure of inflation, we combine an unadjusted medical‐care price index, quality‐adjusted price indexes from treatment innovations, and proxies for the diffusion rate of new technologies. In contrast to official statistics that suggest medical care prices increased by 0.53 percent per year relative to economy‐wide inflation from 2000 to 2017, we find that quality‐adjusted medical care prices declined by 1.33 percent per year over the same period.

Date: 2022
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