Price Indexes for Drugs

Price indexes provide a way to summarize changes in prices of individual goods and services using an aggregate statistic. An important use of these indexes is to decompose changes in spending into price and quantity components. This is the role that price indexes play in the National Income and Product Accounts to obtain measures of real output and productivity. Price indexes are also used in the National Health Expenditure Accounts to provide information on the drivers of spending growth in the nation’s health care sector. More broadly, health economists have used similar decompositions to inform policy debates about which levers may be used to contain cost growth (Merlis 2000).