Improvements in medical treatment have contributed to rising health spending. Yet there is relatively little evidence on whether the spending increase is “worth it” in the sense of producing better health outcomes of commensurate value—a critical question for understanding productivity in the health sector and, as that sector grows, for deriving an accurate quality-adjusted price index for an entire economy. We analyze individual-level panel data on medical spending and health outcomes for 123,548 patients with type 2 diabetes in four health systems. Using a “cost-of-living” method that measures value based on improved survival, we find a positive net value of diabetes care: the value of improved survival outweighs the added costs of care in each of the four health systems. This finding is robust to accounting for selective survival, end-of-life spending, and a range of values for a life-year or, equivalently, to attributing only a fraction of survival improvements to medical care.
Newhouse, Joseph P. "Are Quality-Adjusted Medical Prices Declining for Chronic Disease? Evidence from Diabetes Care in Four Health Systems." European Journal of Health Economics 21.5 (July 2020): 689-702.