Quantifying Productivity Growth in Medical Care: 20 Years of Evidence From Nine Health Conditions

Productivity growth is the fundamental driver of improvements in living standards. However, accurately measuring productivity remains challenging for the health care sector, which accounts for about 18% of the U.S. economy. We develop a framework that combines a utility-based measure of output with a cost-based measure of inputs, consistent with core principles of productivity measurement. The output measure captures improvements in both longevity and quality of life, while the input measure reflects underlying treatment costs rather than regulated prices commonly used in prior studies. We apply the framework to analyze nine conditions over the period 2002–2021, providing the longest and most comprehensive assessment of productivity for acute conditions in the literature. While official productivity measures omit welfare gains from improved health and therefore show flat or declining productivity, our central estimates imply productivity gains of 7.5% per year for these conditions. This result is consistent with the large welfare gains associated with improvements in population health documented in prior research. We find the direction of productivity gains to be robust, although the magnitudes are sensitive to the value of health improvement.