- In primary health care systems where member's turnover is relatively low, the question, whether investment in quality of care improvement can make a business case, or is cost effective, has not been fully answered.The objectives of this study were: (1) to investigate the relationship between improvement in selected measures of diabetes (type 2) care and patients' health outcomes; and (2) to estimate the association between improvement in performance and direct medical costs. A time series study with three quality indicators - Hemoglobin A1c (HbA1c) testing, HbA1C and LDL- cholesterol (LDL-C) control - which were analyzed in patients with diabetes, insured by a large health fund. Health outcomes measures used: hospitalization days, Emergency Department (ED) visits and mortality. Poisson, GEE and Cox regression models were employed. Covariates: age, gender and socio-economic rank. 96,553 adult (age >18) patients with diabetes were analyzed. The performance of the study indicators, significantly and steadily improved during the study period (2003-2009). Poor HbA1C (>9%) and inappropriate LDL-C control (>100 mg/dl) were significantly associated with number of hospitalization days. ED visits did not achieve statistical significance. Improvement in HbA1C control was associated with an annual average of 2% reduction in hospitalization days, leading to substantial reduction in tertiary costs. The Hazard ratio for mortality, associated with poor HbA1C and LDL-C, control was 1.78 and 1.17, respectively. Our study demonstrates the effect of continuous improvement in quality care indicators, on health outcomes and resource utilization, among patients with diabetes. These findings support the business case for quality, especially in healthcare systems with relatively low enrollee turnover, where providers, in the long term, could "harvest" their investments in improving quality.