Abstract

Against the historical backdrop of costly advances in medical technology driving up aggregate health care cost increases across high-income countries, this paper raises a fundamental question: can the high costs of medical innovations be justified when evaluated against the public health benefits of the innovations? In this paper, we offer an answer to this question using a two-step empirical methodology applied to pooled data across Canadian provinces over the period 1980-2014. We estimate the health care cost increases due to medical innovations using a residual-based approach and evaluate the ability of the residual-based cost estimates of medical innovations to explain log-level and the growth rates of four separate public health indicators, including life expectancy at birth, life expectancy at age 65, preventable deaths and infant mortality. We verify the sensitivity of our findings across three separate estimation methods: Pooled-least squares, bias-corrected pooled-GLS and pooled-system estimation methods.

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