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.

Who bears the consequences of administrative problems in health care? We use data on repeated interactions between a large sample of U.S. physicians and many different insurers to document the complexity of health care billing, and estimate its economic costs for doctors and consequences for patients. Observing the back-and-forth sequences of claim denials and resubmissions for past visits, we can estimate physicians’ costs of haggling with insurers to collect payments. Combining these costs with the revenue never collected, we estimate that physicians lose 18% of Medicaid revenue to billing problems, compared with 4.7% for Medicare and 2.4% for commercial insurers. Identifying off of physician movers and practices that span state boundaries, we find that physicians respond to billing problems by refusing to accept Medicaid patients in states with more severe billing hurdles. These hurdles are quantitatively just as important as payment rates for explaining variation in physicians’ willingness to treat Medicaid patients. We conclude that administrative frictions have first-order costs for doctors, patients, and equality of access to health care. We quantify the potential economic gains—in terms of reduced public spending or increased access to physicians—if these frictions could be reduced and find them to be sizable.