ARE MEDICAL PRICES DECLINING - EVIDENCE FROM HEART-ATTACK TREATMENTS

We address long-standing problems in measuring medical inflation by es timating 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 be tween 1983 and 1994. More frequent reweighting and accounting for pric e discounts lowers the measured price change for heart attacks by thre e percentage points annually. Accounting for quality change lowers it further; we estimate that the real Cost of Living Index fell about 1 p ercent annually.