How Much Are Medical Innovations Worth? A Detailed Analysis Using Cost-Effectiveness Studies

Medical innovation is a key driver of cost growth and improved life expectancy, but measuring the welfare contribution of innovations is challenging. We leverage thousands of medical studies to estimate the quality of treatments for 13 health conditions and combine these estimates with insurance claims data to quantify how innovations diffuse and their impact on costs and quality. Across nearly all conditions we study, we find higher quality innovations diffuse. Like markets outside of healthcare, we find innovations can improve consumer welfare substantially. However, we also observe a phenomena arguably unique to healthcare, cases where innovation reduces consumer welfare