We investigate alternative methods for constructing quality-adjusted medical price indexes both theoretically and empirically using medical claims data. The methodology and assumptions applied in the formation of the index have substantive effects on the magnitude of the quality-adjusted price changes. A method based on utility theory produces the most robust and accurate results, while alternative methods used in recent work overstate inflation. Based on Medicare claims data for three medical conditions, we find declining prices across each condition when properly adjusted for quality.

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.

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.

The 2010 Patient Protection & Affordable Care Act (ACA) significantly expanded access to private and public health insurance for low-income individuals through income-based subsidies and income-based eligibility expansions, respectively. In this paper, we use the universe of hospitals from 2009 to 2015 to characterize how these expansions affected the financing of hospital visits, along with price, utilization, and potential spillovers in the quality of care. The insurance coverage expansions generated a shift in the composition of payers and a modest increase in the utilization of hospital outpatient services. While concerns have been raised that these shifts in utilization could cause negative spillovers to the already insured population (e.g., Medicare enrollees), we find no significant change in the quality of care experienced by those already insured. The primary result of both federally funded insurance expansions was to increase the profits generated and prices charged by the hospitals providing such services.

The degree of concentration and market power in South African markets has been the topic of much policy discussion. However, there has been little evidence on what drives market power and the impact of the degree of competition in South African markets on economic outcomes. This paper improves on previous markup estimates for South Africa using a methodology developed by De Loecker and Warzynski (2012) applied to tax administrative data for 2010–14. The paper then explores the firm-level determinants of the estimated markups and assesses the link between competition and firm-level outcomes, including productivity, employment, and wages. The analysis finds that average markups across the economy appear to have risen between 2010 and 2014. Larger firms, higher-intensity exporters, and firms with greater sales shares charge higher markups than comparator firms in South Africa, even after controlling for efficiency. Moreover, lower product market competition has a significant, negative effect on productivity growth, employment growth, and wage growth in South African manufacturing industries. Higher sales-weighted and value-added-weighted average industry-level markups are associated with lower industry-level entry rates. The findings highlight the importance of implementing sound pro-competition government interventions and the significant economic benefits associated with such policies.

Objective To examine the effects of hospital and insurer markets concentration on transaction prices for inpatient hospital services. Data Sources Measures of hospital and insurer markets concentration derived from American Hospital Association and HealthLeaders‐InterStudy data are linked to 2005–2008 inpatient administrative data from Truven Health MarketScan Databases. Study Design Uses a reduced‐form price equation, controlling for cost and demand shifters and accounting for possible endogeneity of market concentration using instrumental variables ( IV ) technique. Principal Findings The findings suggest that greater hospital concentration raises prices, whereas greater insurer concentration depresses prices. A hypothetical merger between two of five equally sized hospitals is estimated to increase hospital prices by about 9 percent ( p < .001). A similar merger of insurers would depress prices by about 15.3 percent ( p < .001). Over the 2003–2008 periods, the estimates imply that hospital consolidation likely raised prices by about 2.6 percent, while insurer consolidation depressed prices by about 10.8 percent. Additional analysis using longer panel data and applying hospital fixed effects confirms the impact of hospital concentration on prices. Conclusion The findings provide support for strong antitrust enforcement to curb rising hospital service prices and health care costs.

More than two decades ago a well-known study provided evidence from heart attack treatments suggesting that prices in medical care were actually declining, when appropriately adjusted for quality. Our paper revisits this subject looking at a large number of conditions and more recent and more comprehensive data sources to compare alternative methods of quality adjustment. A method based on utility theory produces the most robust and accurate results, while the alternative methods used in recent work overstate inflation. Based on claims data for three medical conditions as well as data on medical innovations from over 7,000 cost-effectiveness studies spanning all major condition categories and types of treatment, we find that, when properly adjusted for quality, declining prices from innovation are a prevalent feature of this sector. These findings have important implications for the measurement of medical care output and productivity. The authors would like to thank Ana Aizcorbe, Ben Bridgman, David Byrne, David Cutler, Berthold Herrendorf, Charles Jones, Dennis Fixler, Bronwyn Hall, Bob Hall, Peter Klenow, Brett Matsumoto, John Romley, Louise Sheiner, Jon Samuels, Jon Skinner, and the experts on the Bureau of Economic Analysis Academic Advisory panel for comments. The authors would like to thank conference participants at the NBER CRIW conference, seminar participants at the Society for Economic Measurement in Boston, and participants at the Productivity Growth: Past, Present, and Future conference at Arizona State University and seminar participants at the Federal Trade Commision. The authors would also like to thank Lasanthi Fernando for research assistance. The views expressed in this paper are those of the authors and not necessarily the views of the Bureau of Economic Analysis, the US Department of the Treasury or the World Bank. The authors did not receive financial support from any firm or person for this article or from any firm or person with a financial or political interest in this article. None is currently an officer, director, or board member of any organization with an interest in this article. Abe Dunn Bureau of Economic Analysis Anne Hall US Department of Treasury