obtaining appropriate and reliable transaction price quotes separately for the direct and indirect MCPI components.

CONCEPTUAL AND MEASUREMENT ISSUES

Measuring the prices of medical care services presents many challenges, both conceptual and operational. The medical care sector has undergone, and is continuing to undergo, considerable technological progress and institutional changes, resulting in changing quality of care. As discussed in Chapter 4, the prices paid by patients and insurers for medical care goods and services should, in principle, be adjusted for some, perhaps all, such quality changes in medical care. Consumers’ health status, however, depends not just on their physicians and the medicines they are prescribed but also on their own behavior and life-styles and on the environment in which they live. Thus, one cannot automatically equate changes in health status with changes in the quality of medical services. There are, in addition, profound ambiguities concerning the identity of the consumer and the individual making the consumer’s choice: Is it the patient? The patient’s family or other caregivers? The physician acting as an agent for the patient?

There are also ambiguities about exactly what kinds of services the health care sector provides and hence what outputs should be priced. Diagnostic services that lead to the identification and successful treatment of a symptom can, for example, be included as part of the cost of treating a specific condition and generating a specific output. New diagnostic services that mainly allow a physician or a patient to reject an unlikely diagnosis are more difficult to classify and assess, since they may mainly deliver peace of mind rather than health. Alternatively, such diagnostic services may make patients worry about possibilities that they did not consider before, as can occur from false positives yielded by the prostate-specific antigen (PSA) test for prostate cancer or the pap smear test for cervical cancer.

Ideally, the BLS should not be alone in the world trying to answer these questions. But in most other developed countries, medical services are paid for primarily by governments or government-mandated insurance funds. As a result, medical services are outside the domain of their CPIs. In large part, therefore, BLS is going it alone in addressing these difficult conceptual and measurement issues for the construction of an MCPI.

Input Substitution and Pricing Episodes of Medical Treatment

One of the most significant issues facing BLS is whether it should price medical inputs or medical outputs (outcomes). In years past, BLS has priced a fixed bundle of discrete inputs, such as a day in the hospital, a visit to a gastroenterologist, or a serum laboratory test. This procedure was often criticized, even as early as the 1960s (see Scitovsky, 1967). Among other problems, it overlooks



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