Productivity Growth in the U.S. Medical Care Sector: An Analysis Using the U.S. Bureau of Economic Analysis’ Health Care Expenditure Statistics by Condition

Understanding health care productivity is critical, as the sector accounts for about 17% of U.S. GDP. However, official statistics likely understate productivity growth by failing to capture improvements in medical technology and treatment quality. The Health Care Expenditure Statistics by Condition (HCESC) developed by the U.S. Bureau of Economic Analysis address this gap by measuring spending by condition, enabling more meaningful output measurement. We present a simple framework combining the HCESC with population health data to adjust prices and output for quality improvements. Output is defined as marginal health gains rather than service counts, consistent with prior recommendations. This approach approximates more comprehensive methods while remaining tractable. Our results suggest substantial quality-adjusted productivity growth that is largely masked in official statistics, implying a downward bias of about 1.5 percentage points annually, with a range from 0 to over 5 points. Productivity gains may be larger in other high-income countries, where life expectancy has risen more and spending has grown more slowly.