A Direct Measure of Medical Innovation on Health Care Spending: A Condition-Specific Approach

While technological innovation is believed to be a key driver of spending growth, measuring this relationship is challenging. We address this challenge using a large database of cost-effectiveness studies, which we use to develop proxy measures of inno- vation for specific conditions. We connect to data on spending growth at the condition level from the Bureau of Economic Analysis (BEA) Health Care Satellite Account (HCSA). We find our proxy for innovation is significantly related to spending growth, even after accounting for a number of factors. We estimate that about 18 percent of real spending growth per capita is explained by our proxy for innovation, which we argue is likely a lower bound for the actual contribution of technology on spending growth.