Productivity Growth in the U.S. Medical Care Sector: An Analysis Using the BEA's Health Care Satellite Account

Understanding health care productivity is critical, as the sector accounts for about 17 per cent of U.S. gross domestic product. However, official statistics likely understate productivity growth by failing to capture improvements in medical technology and treatment quality. The Health Care Satellite Account (HCSA), developed by the U.S. Bureau of Economic Analysis, addresses this gap by measuring spending by medical condition, enabling more meaningful output measurement. We present a simple framework that combines the HCSA 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 per year, with a range from 0 to over 5 percentage points. Productivity gains may be larger in other high-income countries, where life expectancy has increased more and spending has grown more slowly.