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Healthcare: Killing America

© 2010 by Kim Frosell

Where our $2.5 TRILLION Goes:





Other Useless Medicine

IAI Foundation – January 2010

Introduction to Failure
Americans will spend $2.5 trillion to maintain our health in 2009. This is more than the total gross
domestic product (what is spent on everything) in every other country in the world except Japan,
China, Germany, France, or the United Kingdom.
Spiraling healthcare costs, and government efforts to “fix the problem”, will bankrupt America.
Medicare will be insolvent by 2017 and is on target to generate a $37 trillion deficit. We spend 17%
of our national output to maintain our health while competing countries, on average, spend half that
amount. Increased healthcare costs are one more reason jobs flee America. Many individuals go broke
each year because they cannot afford expensive care.
Has it always been thus? No! As recently as the 1950s, we spent less than 5% of our wealth to
maintain our health. Yet the length and quality of our lives was little different than today. As recently
as the 1970s, we spent about the same as other developed countries to maintain our health. Yet the
length and quality of their lives are little different, and often better, than ours. What happened?
 Most importantly, in 1965 the government passed Medicare and Medicaid. While we were
assured in 1965 that these programs would not be costly, government now controls 47% of our
escalating healthcare expenditures.
 By the mid-1960s, insurance coverage began to change from covering major medical costs to
paying almost all of our bills. By the 1970s and 1980s companies tried new ways to control
spiraling healthcare costs. Most of these changes further distanced consumers (patients) from
paying their healthcare bills. Doctor visits seemed cheap so we demanded more healthcare.
 Around the same time, medical cartels (e.g. the AMA or local hospitals that control care in
many communities) discovered how to restrict the supply of their services and drive up prices.
Medicine evolved from a healing profession into a lucrative business. Health practitioners
took aggressive actions to protect or monopolize their markets.
The healthcare system is broken. We no longer directly pay for our own care. Ninety percent of
medical costs are processed through government or insurance, yet the average, healthy American still
ends up paying. They pay egregious insurance premiums, higher taxes, and higher prices for other
products. This robs middle-class Americans, wastes a trillion dollars each year, and makes our
companies uncompetitive in world markets.
The healthcare system is broken. Government mismanagement and increased insurance coverage
caused most of this malfunction. America has a healthcare cost crisis and what do our leaders do?
They want to fix a healthcare insurance problem. Requiring insurance companies to accept people
with pre-existing conditions is not a bad idea, but it will cost even more. Penalizing people who do
not have insurance will not make them more or less sick, but it will cost even more. Does anyone
really think all these laws will make healthcare better or more affordable?
Healthcare spending is no longer a free-market transaction and we are paying the price of distorting
this market. Is healthcare really so badly broken?
Waste, fraud, defensive medicine, and unneeded procedures absorb nearly half of our medical dollars.
Experts around the globe and even in the current White House recognize at least 30% of American
healthcare spending could be eliminated without impacting quality of care.
Who benefits from this mess?
Trial lawyers profit from honest medical errors and cause at least 10% of spending to be
wasted as doctors protect themselves from litigation.
Doctors as a group earn 6 times the average level of national income. They profit from
prescribing procedures and tests (often in their own facilities) that are sometimes defensive, or
often just wasteful.
Pharmaceutical companies, and other members of the medical-industrial complex, profit
from the highest prices in the world for their products.
Unions profit from organizing more workers. Unions have long realized the lack of
accountability or a profit motive makes government entities the best targets for organizing
efforts. Is it any wonder they now seek to have medical care become a government function?
Insurance companies profit from selling policies and managing care for corporations. When
much of their business is contracted as a percentage of cost, is it surprising they do not push
for cost controls?
Bureaucrats profit by controlling ever-growing organizations. Power accrues as they grow
their fiefdoms and we suffer from a system riddled with fraud and waste.
Politicians profit by using the healthcare issue to distract the American people, to make us
think they want to help, and to generate massive campaign contributions.
Who pays for our dysfunctional healthcare system?
Middle class Americans pay through insurance premiums that rob either their bank accounts
or paychecks, through higher priced goods and services, and through higher taxes.
American companies (not part of the medical-industrial complex) pay for healthcare and find
it harder to compete in world markets.
Can we fix this? The battle does not seem evenly matched, but let us start with some facts.
In the Beginning
Most of the gains in life expectancy during the 20th century came before 1950 and
resulted far less from medical advances such as penicillin than from improved
nutrition, housing, sanitation, and the increase in average living standards. … Indeed,
the specific role high-tech medicine has played in improving public health is so subtle
as to be hardly measurable. 1
Since we spend three times as much of our GDP on healthcare as we did in the 1950s can this be true?
If true, we have a healthcare cost crisis. Are 47 million uninsured people really the problem?
Comprehensive health insurance is a new concept, a new way for healthy people to pay more of the
cost for those who are not so healthy. We had 76 million uninsured people at the turn of the 20th
century (i.e. the whole population). Maybe we should focus on how much we spend on our health,
rather than on how we pay the bills.
Remember, no one goes without care in this country. While not efficient or fair, it might be smart to
remain uninsured, go to emergency rooms when sick, and then walk away from the bills. It happens
every hour of every day. The rest of us pay for this care in one of three ways: we pay higher health
insurance premiums (whether through an employer or personally), we pay higher hospital or doctor
fees, or we pay higher taxes. That’s it. No one is denied care. The uninsured in America might not
always receive the best quality care, but such care is better than 90% of the world’s population
Debating health insurance takes the focus off the real problems: out-of-control spending and quality
of care that has not kept up with increased costs.
A recent Wall Street Journal (WSJ) article asserted we do not spend enough on healthcare. While
medical costs absorb 17% of gross domestic product (GDP), the healthcare workforce includes about
10% of all workers. 2

Longman, Phillip J. “The Slowing Pace of Progress”, US News and World Report December 25,2000/January
1, 2001
Karpel, Craig, “We Don’t Spend Enough on Health Care”, Wall Street Journal, 2009.
Relative Shares



60% Workers

40% GDP


Healthcare All other

The rest of us (“All other” above) comprise 90% of the workforce, but only share in 83% of GDP. Or
healthcare workers, on average, earn a 70% premium for their work while the rest of us only receive a
92% return for our effort. I can hear the screams now: “This is not a perfect measure!” “Lawyers,
actors, and athletes make even more money”! We do pay lawyers, actors, and athletes more than
average incomes (so their share of GDP is higher), but no one must go movies or ball games. Does
anyone want to justify costly healthcare by saying it is not as bad as lawyers or entertainers?
Healthcare workers take a bigger share of the economic pie than the rest of us. Is this bad? They save
people’s lives and deserve more than lawyers or entertainers. This is a free market and medical
workers are entitled to earn whatever they can get away with.
Part of the problem is that healthcare is not a free market. Insurers or government now pay most bills.
Consumers (sick people) rarely know the price of a procedure. (And the price varies widely depending
on whether one is on Medicare, in a PPO insurance plan, or walks in off the street.) The key to a
functioning free market is that consumers are aware of the price, and quality, of the product to make
informed decisions. The healthcare industry jealously guards information on both these topics.
Medical professions are also cartels. Like OPEC, they band together (think of the AMA) to restrict
entry into their professions. They lobby state governments to impose strict licensing requirements and
doctors acted throughout the 20th century to restrict the number of medical and nursing schools,
resulting in fewer medical professionals. Such actions lower the supply, and thus increase the price, of
medical labor.
Healthcare workers include everyone from orderlies to neurosurgeons. Many healthcare workers are
paid less than average wages. So a small proportion of this workforce reaps much of the return from
our increased medical spending. (In 2000 there were 705,960 Physicians and Surgeons, 3 or 0.5% of
the workforce, yet Physician and Clinical Services consumed 2.9% of GDP 4 or almost 6 times their
Relative Share of the workforce. We will compare this ratio to other countries later.) Haven’t doctors
always earned more than other people because of all that training? Aren’t doctors doing a better job
than they ever did before?
Most increases in life expectancy occurred during the first half of the 20th century and did not result
not from active healthcare intervention. 5 What do historical trends tell us? We do not have great data
on costs for the early 20th century. We do have good employment information after 1940 from the

Unless otherwise noted, employment figures come from the US Census Occupation and Industry tables.
Centers for Medicare and Medicaid Services, Office of the Actuary, National Health Statistics Group.
Much of the improvement was due to better knowledge of what caused disease. It was not the curative process
that created improvements in health, but rather preventative effects of better diet and hygiene.
Census Bureau 6 and good cost data after 1960 from the National Health Statistics Group of the U.S.
Department of Commerce. The following plots the % of healthcare workers to total workers and
healthcare cost as a % of GDP. (Using % of GDP incorporates general price inflation.)

Healthcare Shares of Workforce and GDP


% of workers
% of GDP























Appendix A describes calculations of pre-1960 cost data and pre-1940 workforce estimates. This
pamphlet focuses on cost acceleration after 1950. Before WWII, we did not have a culture of heroic
medicine, costly test equipment, a predominance of medical specialists, or expensive pharmaceuticals.
Costs grew slowly before 1950 and as late as 1940 healthcare workers were only 2.3% of the
workforce. Many of those workers were poorly paid female nurses. (Simple cleanliness created by
those nurses may, however, have been one of our most important improvements.)
Medical costs have grown faster than our national wealth, but are we healthier today than we were
100, 50, or 10 years ago? Are we healthier than people in other countries?
There are many measures of healthcare effectiveness, but when we go to a doctor we want her to help
us live longer and function better over that longer life. The latter concept is hard to measure, but we
have good statistics on American life expectancy. 7

Life expectancy

77.0 77.8
70 70 .8
73 .7
6 9 .7
6 8 .2

60 6 2 .9
59 .7

50 54 .1
50 .0
4 7.3

1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2004

These employment statistics are drawn from the Employment by Industry tables of the Census reports from
1940 until 2000. See Appendix A for details.
Centers for Disease Control,
Looks good: in 104 years life expectancy increased from 47.3 to 77.8 years. As noted in our opening
quote, 20.9 years of that improvement occurred in the first fifty years of the twentieth century versus a
9.6-year increase since 1950. Improved sanitation, safer working conditions, and better diets prevented
diseases and accidents that had kept life expectancy low and infant mortality high 8 before the 20th
century. (Accountants or baristas are safer in 2009 than farmers or industrial workers in 1899.)
Year Life Expectancy at Birth Increase in % Increase in
Years Years
2004 77.8 0.8 1.0%
2000 77.0 1.6 2.1%
1990 75.4 1.7 2.3%
1980 73.7 2.9 4.1%
1970 70.8 1.1 1.6%
1960 69.7 1.5 2.2%
1950 68.2 5.3 8.4%
1940 62.9 3.2 5.4%
1930 59.7 5.6 10.4%
1920 54.1 4.1 8.2%
1910 50.0 2.7 5.7%
1900 47.3

What return-on-investment did we really gain from growing healthcare expenditures? Both healthcare
costs and life expectancy grew over the past 100+ years. But, how much of the improvement in the
latter is due to dramatic increases in the former since 1950? As we spent more on healthcare, increases
in life expectancy slowed:

Return on Investment

8.0% %Increas e in
6.0% exp ect ancy
b y d ecad e
4.0% %o f GDP















At best, we experienced diminishing returns from interventionist healthcare. Unless riddled with
waste and inefficiency in our healthcare system, we are spending more for smaller gains.
What’s so bad about spending 17% of our national income on healthcare?
Politicians are now interested in healthcare and some say spending 17% on healthcare is not so bad.
We need those jobs. In the previously quoted WSJ article, Craig S. Karpel claims we aren’t spending
enough on healthcare. By the middle of the century, he feels we should spend 30% on medicine

If one lives to their first birthday the impact on total life expectancy is dramatic. We did many things, though
medical intervention was only a small part, that helped children survive that first year.
regardless of the poor return. Then 16-18% of the workforce would earn 30% of all income. The
remaining 83% of us would share only 70% of income. Since most healthcare workers earn average
salaries, a medical elite would control ever more massive amounts of national income.
We really should view increased healthcare costs as a tax on society. We had pretty good care in 1970
while spending 7% of GDP. Since 1970, we have experienced little general improvement in health
outcomes but now spend 17% of GDP. In effect, we implemented a 10% “healthcare tax” on the
entire economy. This “tax” takes money from middle-class workers and gives it to a growing
healthcare bureaucracy and medical elite. This tax, like any tax, redistributes wealth and is a drag on
the economy.
High healthcare costs tax the economy by placing American producers at a competitive disadvantage.
American companies pay roughly twice what foreign firms expend for healthcare so it becomes more
difficult to compete in foreign markets. Excessive healthcare costs are another reason to move jobs
offshore. The American worker is twice harmed. To avoid excessive costs employers move jobs to
other countries. Then, for the jobs that remain, escalating costs either prevent employers from offering
coverage or divert money from paychecks to insurance companies.
What are the costs of, and returns on, healthcare in the rest of the world? We are roughly 4% of
the world’s population, yet pay half of all money spent on healthcare. Do we get better healthcare for
those extra dollars?
In Costa Rica, total healthcare expenditures per person [in 2000] come to just $226 a
year, as compared with $4,187 in the United States, according to the World Health
Organization. And there are only half as many doctors per capita as in the United
States. Yet for women, life expectancy at birth is only slightly lower in Costa Rica
than in the United States, and for men it’s actually higher. Why?
Probably because most Costa Ricans have access to basic, preventative health care,
and more important, have enough money to feed and house themselves and their
children adequately … Yes, many Costa Ricans who get sick in old age don’t have
access to high-tech procedures that might extend their lives a few more months or
years. But this has little effect on average life expectancy. 9
Even if Costa Ricans live as long and are generally as healthy, do we want Costa Rica as our
benchmark? Many Americans make just that comparison as they retire to Costa Rica.
How does our healthcare compare to the industrialized countries we compete against? There is little
difference in common indicators (e.g. life expectancy) among industrialized countries:
Country 1970 Life 2006 Life
Expectancy 10 Expectancy 11
United States 71 78 (7)
Japan 72 83 (11)
Germany 70 80 (10)
France 72 81 (9)
Italy 72 81 (9)
United Kingdom 72 79 (7)
Canada 73 81 (8)

While our life span is not quite as long, we spend substantially more on care than any other country in
the world, measured as either a % of GDP or per capita. As recently as 1970 this spending gap was
rather small:

Longman, Phillip J. ibid
World Development Indicators Database … rounded to nearest integer.
World Health Organization.
Total Health Care Expenditure as a % of GDP 12
Country 1970 1980 1990 2007
United States 7.3 9.1 12.6 16.0
Japan 4.6 6.5 6.1 8.1 [2006]
Germany 6.3 8.8 8.7 10.4
France 5.8 7.6 8.9 11.0
Italy 5.2 7.0 8.1 8.7
United Kingdom 4.5 5.6 6.0 8.4
Canada 7.0 7.2 9.2 10.1
In 37 years, healthcare’s share of GDP expanded by 8.7 percentage points, and grew still more the past
two years. Only France comes close to this increase and they spend only 5.2 percentage points more
on healthcare than in 1970. American spending has more than doubled yet our life expectancy
increased the least of these countries.
Why do we spend so much more? Mark Pearson, Head of the Health Division of the OECD studied
just this question and concluded: 13:
 “The richer a country is, the greater the amount of money it devotes to its health. …
[However, a] country with the income level of the United States would be expected to spend
around $2,500 less per capita than it actually does—equivalent to $750 billion per year.” [p. 3
emphasis added]
 “One factor which cannot explain why the US spends more than other countries is aging.
Many European countries and Japan have been aging much more rapidly than the United
States.” [p. 3 author’s emphasis]
 “Similarly, Americans are not any more likely to be sick … [and] Americans have had much
lower rates of smoking than most other OECD countries since 1980, and so this should be
contributing to better health outcomes.” [p. 3]
Healthcare is simply another “product”; a product with both quantity (number of visits, pills, or scans)
and price components. This relation of price and quantity is where the market works to determine the
product’s total cost. Pearson claims “evidence suggests health prices are higher in the United States
than elsewhere.” [p. 7] His data, with emphasis added, shows that:
 “Prices … in the United States were around 25% higher than the OECD average. … this
difference in health price levels would explain at least half of the differences in spending
between the United States and the rest of the developed world. However, … there is good
reason to think that prices in the United States are underestimated, and the real difference in
prices is even larger.” [p. 7-8]
 “Pharmaceutical spending per capita is higher …” [p. 7] and “the true difference in price is as
much as 50%. [p. 8]
 “Administration of the US health system is expensive: the 7% share of total spending going on
administration is twice the average of OECD countries.” [p. 7]
 “ … US price levels of hospital services [tend] to be nearly twice as high as the average of 12
other countries.” [p. 8]
 “Another component of outpatient care costs that has grown rapidly in the United States in
recent years is the cost related to diagnostic tests, … the number of MRI and CT exams per
capita are much greater in the United States than in any of these other countries, and are over
twice as high as the OECD average.” [p. 10]
 “Remuneration of US GPs exceeds those of doctors in other countries … The gap is even
larger for specialists. … high rates of income of US doctors might reflect both higher fees and

OECD Health Data. 1970-1990 as reported in Health Care Financing Review/Winter 1999/Volume 21,
Number 2, p 101.
Pearson, Mark, “Disparities in health expenditures across OECD countries: Why does the United States spend
so much more than other countries?” a Written Statement to Senate Special Committee on Aging, September 30,
2009. The summaries come from this report and each is referenced to the appropriate page.
higher activity than in other countries. On balance, however, it seems likely that at least some
part of the high rates of remuneration are due to high prices rather than to high volume of
activity.” [p. 8]
The author sees no relation between this last bullet item and his next issue: “the United States has
significantly fewer practicing physicians in relation to the size of the population than in other
countries.” [p. 8] If one believes markets set prices, these two points go together. When the supply of
any commodity (e.g. doctor time) decreases, the price of that commodity will increase. The next table
details how much more some American healthcare workers made in 2004. (The “Ratio to per capita
GDP” addresses the relative “share of income” argument that we made earlier.)
Compensation in Certain Health Care Professions, 2004 ($ in US Purchasing Power Parities) 14
Specialists General Practitioners Nurses
in Ratio to per in Ratio to per in Ratio to per
$1,000s capita GDP $1,000s capita GDP $1,000s capita GDP
United States $230 5.7 $161 4.1 $56 1.4
Canada $161 5.1 $107 3.4 NA
United Kingdom $150 4.9 $118 3.9 $42 1.4
France $149 5.0 $92 3.1 NA
Germany $77 2.7 NA NA
Median $83 3.3 $80 3.0 $34 1.3

So what? We spend more on healthcare even though our people are neither older nor sicker. We
began spending more to maintain our health after the 1950s. Why?
Let me first share two biases: 1. I hate insurance companies. What other business consciously profits
by screwing its customers? You must pay your premiums and then they will do everything possible to
not pay your claims. 2. The government is incompetent. Do you really want people that try to deliver
your mail, run passenger railroads, or launch spacecraft at five times the cost of private options to
provide your healthcare?
A further bias: free markets work and excessive healthcare costs result from distortions in the market.
Some will say: “Our health is too important to depend on markets!” In every country in the world,
regardless of how bills are paid, healthcare is still the purchase of a good or service. That good or
service has a price and economic forces determine availability and quality. Why are there waiting
lines in Britain? Doctors ration the amount of time they will work based on the prices they are paid by
government. Fewer people become, or remain, doctors because they can earn more money elsewhere.
Markets work in this industry as in every other. So what happened in America since the 1950s?
1. Government wants to help … itself to power
During WWII the federal government instituted wage and price controls on American industry. To
keep workers, companies had to find a way to pay people more. To get around government controls,
larger companies began compensating employees with more “benefits.” And the largest of these
benefits was health insurance. Employers began to pay medical bills. However, medical cost
remained a small part of a typical person’s expenses in the forties and fifties. Insurance focused on
expensive health events, not everyday care. “Across the population as a whole, insurance covered 33
percent of private consumer expenditures by 1964, up from 12 percent in 1950, skewed toward
hospital care and surgical services.” 15 This changed. Over time, unionized workers in the auto, steel,
and airline industries bargained to have all care provided by employers. This forced many other
companies to offer similar programs.

Rampell, Catherine, “How Much Do Doctors in Other Countries Make?”, New York Times website, July 15,
Stevens, Rosemary A., “Health Care in the Early 1960s”, Health Care Financing Review/Winter 1996/Volume
18 Number 2, p. 14.
In 1965, post-Kennedy-assassination angst and LBJ’s landslide election allowed passage of the
Medicare and Medicaid laws. The federal government now paid medical bills. (Of course, state and
local governments had long paid costs for the indigent on a charity basis.) Healthcare became an
American “right”. At first, this right extended only to the aged and the poor. (Funny… I don’t see
anywhere in the Constitution that certain groups, like the aged and the poor, have more “rights” than
others. I also don’t see any right to healthcare. What article gives the national government the ability
to provide care?)
Politicians assured us it would cost so little to do so much good. In 1965, they estimated that by 1990
Medicare would only cost us $12 billion and by 1992 Medicaid Hospitalization would only cost $1
billion. Any country with our wealth could afford that. Oops! The former actually cost $110 billion
in 1990 and the latter actually cost $17 billion in 1992. 16 But now the estimates that come from
Congress will be so much more accurate!?
State governments share the blame. Insurance companies are regulated at the state level. Each state
mandates what care must be covered. State regulators could not allow “ill-informed consumers” to
decide what coverage they really want. “[E]very state has a list of benefits that any insurance policy
must cover—from contraception to psychotherapy to chiropractic to hair transplants. All states
together have created nearly 1,900 mandated benefits. More generous benefits make insurance more
expensive. A 2007 study estimates existing mandates boost premiums by more than 20%.” 17
How much of our care is paid through insurance or government today? Based on the Department of
Commerce’s Centers for Medicare & Medicaid Services we will spend $2.5 trillion on healthcare in
2009. Per the chart below government ($1,190 billion) and private insurance ($854 billion) will pay a
total of $2,044 billion.

2009 Healthcare Expenditures



O ut of $182 O ther Gov
Pocke t
O the r

Projected data: Centers for Medicare & Medicaid Services


2. People no longer know what healthcare really costs

Even the current White House Deputy Economic director realizes: “One important contribution to all
of these challenges is the increased insulation of Americans from the cost of their care … [and] cost
sharing, if related to a family’s income, could reduce health spending by an average of 31 percent

From Editorial page of the Wall Street Journal of October 20, 2009 quoting various government sources.
Whitman, Glen, “Bad Medicine for Health Care”, BusinessWeek, October 15, 2007, p. 118.
Chart from Business Week November 9, 2009, p. 17.
without any worse health outcomes. Subsequent research finds that the savings could be even
greater.” 19 This fellow must be hiding in the White House since none of the current bills ask
Americans to participate more in their healthcare so we would save over 30% on our medical spending
(that $750 billion again).
Americans pay only 11% of their medical bills, including non-allowed expenses like cosmetic surgery,
eye care, etc., directly to providers. Cash payments made to traditional doctors and providers are
minimal. Americans do not avoid paying for their healthcare. Since most people are generally
healthy, they actually consume much less healthcare than they pay for through insurance and co-pays.
Most healthcare is actually consumed by the very elderly and those with chronic conditions (5% of
consumers use half of all care). Government or insurance companies pay the bills while the rest of
fund the real cost through higher premiums, prices, and taxes.
As recently as 1964 people directly paid 67% of healthcare costs. Now they pay only 11% out of their
own pockets. Over the past 20 years, companies realized health costs were bankrupting their
businesses, if not yet the country. They tried to control costs. One option was the HMO where
healthcare was controlled by a “family doctor”. S/he received a fixed fee to watch over you and you
did not have to pay for individual visits. (That last part was nice. Problems arose when your family
doctor tried to control costs, decided what treatments were needed, and from whom you could receive
them.) HMOs became the butt of jokes in the popular culture. Consumers rebelled.
Next came Preferred Provider Organizations (PPO) and $10 co-pays. If you went to an in-network
PPO doctor you paid only $10 for a visit. So consumers decided, rationally, to go to the doctor, a lot.
But ever since doctors stopped taking chickens in payment for services, no doctor would treat anyone
for $10. So someone else paid what the visit really cost. Millions of Americans observed false price
signals and thought medical care was really cheap. Like anything that becomes really cheap, they
demanded a lot more of it. However, as the demand from consumers increased the real price required
by the doctor—and paid by the employer—went through the roof.
3. What do Doctors and Oil Sheiks have in common?
They both belong to cartels that limit the supply of their product. Oil sheiks go to Geneva for OPEC
meetings. Doctors, and their trade associations like the AMA, go to conventions and state capitols to
write laws that restrict competition. But the effect of each is the same: they control the supply of their
product (whether oil or the number of pediatricians), to drive up the price of that product.
One way to control supply is to limit the number of doctors and other practitioners while justifying
such restrictions as “protecting the health of American consumers.” Over time the AMA cartel has
lobbied hard to limit the number of doctors and other competitors:
 The number of medical schools has been reduced since 1900 and curriculums now require
more time. While this is justified to improve quality, as it may have done, the guaranteed
effect has been to restrict the number of practicing doctors.
 States prohibit well-trained physician’s assistants and nurse practitioners from performing
certain tasks and require clinics that employ such workers to have at least a part-time doctor to
“supervise”. The extra costs stop clinics from offering good basic care in many locations.
 Foreign-trained doctors must, after passing certification boards, still re-enter residency, and
the number of available slots is restricted. This limits access to alternative sources of supply.
There are many other examples of medical providers acting to reduce competition and cause
Americans to pay more for treatment.
4. The Democrat Party found two sugar daddies
Franklin D. Roosevelt wanted one thing more than any other: to be elected, lots of times. To do this he
built a coalition that kept Democrats in power for most of the next 70 years. Over time, this coalition

Furman, Jason, “The Promise of Progressive Cost Consciousness in Health-Care Reform”, The Brookings
Institution, April 2007, p. 2.
changed and evolved, yet two key groups still provide most of the money: trial lawyers and unions.
These funding sources have deep tentacles wrapped around our healthcare system.
Lawyers want the unfettered right to sue doctors and other deep-pocket providers. The cost of
malpractice and defensive medicine has been a major cause of increased healthcare costs since the
Unions want the unfettered right to unionize workers. For a long time the number of nurses has not
met the demand for nurses so their wages increased over the past 50 years. That is how the market
draws workers into a profession. There are many reasons for the shortage, including limits on
available training slots in nursing schools. However, we are seeing a growing new factor:
Remember the purpose of any union: get more members to pay dues. The best method of getting more
members is to create work rules that limit what tasks a particular worker can perform and the volume
of tasks they can perform in a work period. Anything that restricts activity results in the need to hire
more workers to perform the same volume of work. If a unionized dietary aid must now deliver food,
you need more dietary aids. LPNs can no longer do this task, even if they have time. A hospital needs
more dietary aids and LPNs, and passes higher costs on to consumers.
The current administration’s favorite union is the SEIU. Their top priority, per their web site, is to
“fight for health care.” Isn’t that noble? A union cares more about our nation’s healthcare than its
own members. Altruism plays no role. The SEIU is trying hard to organize healthcare workers: ten
percent of American workers is an appealing target. With government in control of healthcare, unions
will “bargain for” the same deals they receive from other government entities they conquered. City,
county, and state governments have no profit incentive. They willingly cave to union demands and
simply push costs on taxpayers. (A dirty little secret is the managers who negotiate for taxpayers also
gain from union victories. Their benefits will be at least as good as those they negotiate for workers.)
Long-term, trial lawyers, unions, and their contributions may be the biggest impediment to controlling
medical costs. Both have massive financial incentives to increase costs and degrade quality. Trial
lawyers bring more suits and unions demand more workers.
Where are we now?
Any industry that claims 17% of the world’s largest economy will attract people who wish to distort
the underlying economics for their own benefit. Such distortions can range from legally controlling
the supply of licensed providers to schemes to defraud the system. Many studies demonstrate the
inefficiency and declining integrity of the American healthcare system in just 50 years.
“Seven hundred billion dollars. That’s a ballpark estimate of how much money is wasted in the U.S.
medical system every single year, according to a new Thomson Reuters report. A sum equal to
roughly one-third of the nation’s total health-care spending is flushed away on unnecessary treatments,
redundant tests, fraud, errors, and myriad other monetary sinkholes that do nothing to improve the
nation’s health.” 20 The OECD study claimed we spend $750 billion more on healthcare than we
should, based on national income. Can these numbers be right? Several studies seem to agree:
 “And most economists lay the bulk of the blame for rising costs on America’s fee-for-service
payment system, which reimburses doctors [and other providers] for every service and office
visit. Pay doctors for volume instead of value, and you run into trouble: As several studies
have documented, some one-third of medical interventions in the U.S. are unnecessary,
redundant, or incorrect.” 21

Arnst, Catherine, “10 Ways to Cut Health-Care Costs Right Now”, BusinessWeek, November 23, 2009, p. 34.
Arnst, Catherine, “Bitter Medicine for the AMA”, Businessweek, June 29, 2009, p. 27.
 “After all, the U.S. healthcare system wastes between $505 billion and $850 billion every
year, according to a report from Robert Kelley, vice president of healthcare analytics at
Thomson Reuters.” 22
 According to the director of the Congressional Budget Office “some academic research
suggests that national costs for health care can be reduced by perhaps 30% without harming
quality.” 23
 A 2008 PriceWaterhouseCoopers study estimates the United States “wastes” $1.2 trillion in
healthcare costs each year. 24 See Appendix B for details.
 “The potential to reduce overuse of procedures—and cut costs—is huge. Overall, ‘there is
good reason to believe 30% to 40% of what we are spending goes for unnecessary services
and inefficient care,’ says Dr. Elliott S. Fisher, director of the Center for Health Policy
Research at Dartmouth Medical School.” 25
 “One obvious place that Congress could look for savings: the waste already embedded in the
medical system. … They calculate that 20% or more of all costs could be eliminated without
harming anyone. It might even save some lives by preventing complications from
unnecessary treatments and hospital stays. At least 40% of all specialist visits and 25% of
hospital stays are unnecessary, Fisher estimates. ….Doctors aren’t always keen on taking a
scientific look at whether they are wasting patient’s money. … Wasteful medicine can be
profitable.” 26
The list goes on. These studies conclude we will waste between $505 billion and $1.2 trillion of the
$2.5 trillion spent in 2009. Fix this problem and our spending would be equivalent to the other
developed countries in the world. Fixing these problems takes hard work. One person’s waste is
someone else’s income. Stop waste and you eliminate profits for political contributors to both parties,
something our leaders are loath to do.
Politicians claim they can pay for “insurance reform” by curbing waste in the current system. They
can save hundreds of billions to fund more government healthcare. Wait a minute; the government
currently pays 47% of all healthcare costs and they are wasting, according their own numbers, billions
of dollars. When they take over a bigger share of healthcare, we will waste less? Does that sound
reasonable to anyone?
Then there is fraud. Politicians see Medicare as the example of efficient government healthcare:
Medicare only costs 3% for administration. Insurance companies spend more on administration and
one reason is to prevent fraud (estimated at 1.5% of total cost for privately paid care.) Surely, our
“hyper-efficient” government watchdogs let no fraud creep into the programs they “manage” today.
 On November 15, 2009, just as the government was asking to control more of our healthcare,
the Associated Press reported: “The government paid more than $47 billion in questionable
claims, including medical treatment showing little relation to a patient’s condition, wasting
taxpayer dollars at a rate nearly three times [what was reported] the previous year. Excerpts of
a new federal report, obtained by the Associated Press, show a dramatic increase in improper
payments in the $440 billion Medicare program that has been cited by government auditors as
a high risk for fraud and waste for 20 years.” 27 And this is the estimate of the insiders.
 “It is estimated anywhere from 3 percent to 40 percent of Medicaid payments are lost to ‘fraud
and abuse.’ However, the actual amount cannot be known because the Centers for Medicare

Baltimore, Chris “Special Report: Are doctors what ails U.S. Healthcare?” Reuters,
November 6, 2009.
Orszag, Peter R., ”The Biggest Budget Buster”, Wall Street Journal
PricewaterhouseCoopers, “The price of excess: Identifying waste in healthcare spending”, 2008.
“New Business”, Businessweek, June 22, 2009, p. 23.
Langreth, Robert, “Useless Medicine”, Forbes, November 30, 2009, p. 64. Emphasis added.
Gov’t: Medicare paid $47B in suspect claims” Yen, Hope, Associated Press as reported in the Naples Daily
News, Novermber 15, 2009, p. 18A.
and Medicaid Services has failed to properly track improper payments—in clear violation of
federal law.” 28
 As reported in The New England Journal of Medicine (“NEJM”): “The National Health Care
Anti-Fraud Association, an organization of about 100 private insurers and public agencies,
estimates that some $60 billion … is lost to fraud every year, but that figure is considered
conservative.” 29
 “According to the National Health Care Anti-Fraud Association (NHCAA), 3-10% of the
nation’s annual health care outlay is lost to fraud and abuse. …valued somewhere between
$77 - $255 billion for 2009.” 30
 “There are tremendous difficulties in measuring precisely how much of money is lost to fraud
in Medicare and Medicaid. Some estimates put the number at around $60 billion, while Sen.
Tom Coburn has argued that it’s at least $100 billion, perhaps even double or triple that.
Coburn based his figures on an estimate from health care fraud expert Malcolm Sparrow of
Harvard University, who has said—at the low end—10 percent of the roughly $1 trillion in
spending on government health care programs may be lost to fraud.” 31
Isn’t this concern over fraud and waste just a way for the vast right-wing conspiracy to stop healthcare
“improvements” by government? Yet Harvard, the AP, the NEJM, and the government itself cannot be
members of the conspiracy? Even the regular media now recognize government does not run
healthcare efficiently:
 In 2007, National Public Radio reported that Medicare is “a trusting system” whose “main
mission is not to root out fraud; it is to pay claims quickly and smoothly. …If fraud and abuse
account for 20 percent of the current Medicare budget, that would amount to more than $70
billion.” 32
 Recently “60 Minutes” reported “Medicare and Medicaid fraudsters are beating U.S. taxpayers
out of an estimated $90 billion a year using a billing scam that is surprisingly easy to execute.
… In fact, Medicare fraud—estimated now to total about $60 billion a year—has become one
of, if not the most profitable, crimes in America.” 33 What “60 Minutes” says must be true.
While not a formal study, have you ever had relatives or friends in nursing homes? If so:
 Is it fraud when doctors roam nursing homes, just saying “hello”, and then billing Medicare?
 Is it fraud to give an 82-year-old, bed-ridden patient occupational and physical therapy so they
can return to “work”?
 Is it fraud when a psychologist, brought in for a little grief counseling, remains a “friend”,
stops by to chat—and bills for each “friendly” visit?
 Is it fraud to run test after test on someone with only months to live, who is no longer aware,
and who has no relatives to review the care?
My guess is that none of these billing tactics or unneeded services in the last stages of life are included
in fraud statistics. But they happen and the payments are “trustingly” and “smoothly” paid once the
proper forms are completed. As most readers are probably aware, Medicare recipients with Medi-Gap
insurance only see medical statements once a quarter. When asked, someone I know admitted seeing
“strange bills” on those statements, but was “afraid to say anything because, you know, the doctor
might not see me anymore.”

“Bolstering the Safety Net: Eliminating Medicaid Fraud” Senator Tom Coburn’s Oversight Action Hearings,
on http://coburn.senate.gove/oversight March 28,2006.
Iglehart, John K., “Finding Money for Health Care Reform—Rooting Out Waste, Fraud, and Abuse”, The
New England Journal of Medicine, July 16, 2009.
“Fraud Stats—What Does Health Care Really Cost?” on , 2009.
Klein,Phillip, “Medi-Fraud for Everyone”, reported on October 23, 2009.
Allen, Greg, “Medicare Fraud Acute in South Florida” October 11, 2007 reported on
“Medicare Fraud: A $60 Billion Crime”, October 25, 2009 as reported on .
OK, so waste and fraud take up to half the nation’s expenditure on healthcare. Can anything else drive
medical costs through the roof?
Malpractice … the easiest thing to fix that is hardest to get done
Reforming the malpractice industry is the easiest action we could take to reduce healthcare cost.
There is debate over the cost of malpractice to Americans. “Total spending on medical malpractice,
including legal-defense costs and claims payments, was $30.41 billion in 2007, according to an
estimate from consulting firm Towers Perrin.” 34
Some rely on such numbers to estimate we would save only 1% to 2% of healthcare costs. They claim
tort reform would therefore “barely make a dent in the total. … The authors [from Northwestern’s
Kellog School of Management] concluded that comprehensive, nationwide reforms would lower
overall health-care costs by 2.3% at most.” 35 (Only in Washington, DC would $50 billion be “barely
a dent”.)
So let’s save $50 billion to start. It would take less than 1,992 pages to write a bill to end lawyers’
attacks on American healthcare. Doctors would no longer have to pass malpractice insurance costs on
to their patients. People could re-enter fields (e.g. OB-GYN) that are losing doctors at an alarming
rate. Things can go wrong when we deliver babies, but that does not stop lawsuits, and few can afford
high premiums.
Most importantly, doctors could stop prescribing unneeded tests and procedures to defend against
litigation. (Remember all those MRI and CT scans not needed in the rest of the world?) The cost of
defensive medicine is hard to pin down but some estimates include:
 “The American Academy of Orthopaedic Surgeons puts the cost of defensive medicine [at]
$100 billion to $178 billion per year.” 36
 The previously cited PriceWaterhouseCoopers study estimates the cost at $210 billion.
 “To be sure, medical malpractice premiums constitute well under 1% of the total healthcare
bill. But defensive medicine adds perhaps as much as 10% [$250 billion.]” 37
 “A full accounting shows the benefits [of malpractice reform] would be a hefty $242 billion a
year, more than 10 percent of America’s health expenditure.” 38
 “Eliminating defensive medicine could save upwards of $200 billion in health-care costs
annually, according to estimates by the American Medical Association and others. The cure is
a reliable medical malpractice system that patients, doctors and the general public can trust.
But this is one reform Washington will not seriously consider. That’s because the trial
lawyers, among the largest contributors to the Democratic Party, thrive on the unreliable
justice system we have now.” 39
No other country in the world handles medical errors like the United States. This problem could be
solved, but first we must realize that we still don’t know everything about medicine. People make
mistakes. Most doctors and providers try diligently to make the best decisions and give patients the
best healthcare. However, if they are actually negligent—the legal standard for damages—they should
no longer practice medicine. Too often sympathetic but ignorant juries cannot differentiate between a
mistake and negligence, but “feel” they should give the poor patient an award.
If we had the political will, this problem could easily be tackled and we would have an immediate
reduction in healthcare cost with no impact on quality of care. (Avoiding the discomfort of all the

Searcy, Dionne and Goldstein, Jacob, “Health Care’s Intangible Cost: Legal Liability”, Wall Street Journal,
September 3, 2009, p. A13.
Arnst, Catherine, “A Second Opinion on Malpractice”, Businessweek, September 28, 2009, p. 30.
Karlgaard, Rich, “Our Health Care Crisis: Age, Obesity, Lawyers”, Forbes, September 7, 2009, p. 19.
Epstein, Richard A., “How Other Countries Judge Malpractice”, Wall Street Journal, June 30, 2009, p. A15.
McQuillan, Lawrence J. “CBO Underestimates Benefits of Malpractice Reform”, Wall Street Journal, October
23, 2009.
Howard, Philip K. “Why Medical Malpractice is Off Limits”, Wall Street Journal, September 29, 2009, p.
extra tests and decreasing exposure to drug-resistant bacteria would actually result in better health and
quality of life.) Details for a solution are beyond the scope of this pamphlet but are available. As long
as the Democrat party is in control we will waste billions enriching lawyers and practicing unneeded
medicine. (Republican power brought its own problems, but they are not now in power.)
One other little issue should be addressed: doctors often own facilities they send us to for tests. One
thoughtful and concerned doctor who ponders the various cost vs. outcome issues of today’s medicine
suggests that “The reasons are complex, but probably because good physicians are ordering lots of
tests, calling in lots of consultants, making good use of the equipment they own and the imaging
centers they might have a stake in (and yes, they think they can be objective in ordering an MRI or
CAT scan that sends the patient to their own facility)” costs go up. Also, “it has to do with hospitals
competing with each other for the kinds of patients with conditions that are reimbursed well, … “ 40
Providers are in a business and want to maximize income. One way to accomplish this goal is to
maximize the number of treatments and the price of those treatments. “ … various studies have found
that doctors who have their own machines order scans more frequently than doctors who don’t.” 41
Conclusions on the American Healthcare System
In what other industry do you generate more business by fixing your own mistakes (e.g. a
misdiagnosis)? Where else could you grow profits by making customers worse off (e.g. becoming
infected while in a hospital)? Where else do honest errors turn into business opportunities for trial
lawyers? Only in America do we let:
 people waste or steal between $500 and $1,200 billion each year from our medical system.
 current government programs become deeply polluted by waste and fraud.
 medical errors enrich lawyers at our expense.
 consumers incorrectly think healthcare is “cheap” so they demand more of it.
 cartels restrict the supply of health services and drive up costs.
 providers profit from doing more procedures rather than providing better care.
And we have not addressed the impact of patient behavior (e.g. smoking, obesity, lack of exercise,
etc.) on healthcare cost.
The cost of healthcare could be cut in half, but what do our politicians want to fix first? They
want the most fraud-riddled and inefficient system—our government—to take over more of our
care! They want to cover 47 million Americans without insurance rather than fix the cost of
care for all 307 million Americans.
Millions of the uninsured are healthy young people who do not want to be covered at rates determined
by this wasteful cost structure. Millions more are illegal visitors to the country. Most of the rest are
middle-class people, often uninsured for a brief period between jobs, who cannot afford individual
policies. Some are very sick people who, while not poor, have no reasonable options for health
insurance. If any of these people get sick, they go to a hospital for care and do not pay their bills. So
they have crafted their own old-fashioned hospitalization plan, except they don’t pay premiums. The
rest of us pay.
What should our politicians fix first? There is a role for government in this process. They could
easily fix some of the things that are broken and enforce existing laws. Government should not be
involved in running things (like Medicare and Medicaid) since they always fail. They should first
lower costs for all Americans, insured or not, and prove to us they can effectively manage the health
programs they already control. Some ways to do this:
1. Fix the malpractice system
This should be the test of the politicians’ real intent. If they want to make care more affordable, this
would be the first item on their “to do” list. No other country in the world uses medical errors as a

Verghese, Abraham, “The Myth of Prevention”, Wall Street Journal, June 20-21, 2009, p. W1.
Langreth, Robert ?????? ibid???? p. 68.
source of campaign contributions. The first task should be to empower a non-political panel to
create medical malpractice laws to protect patients from truly negligent care, assure poor practitioners
are removed from medicine, avoid enriching lawyers, and eliminate defensive medicine. To save
between $50 and $250 billion, with no negative impact on care, this should be done immediately.
2. Focus government efforts on enforcing laws and improving the existing system
The government controls almost 50% of healthcare today and their systems are filled with fraud and
waste. Government’s role is to protect us. Fraud is already illegal in every state of the union. There
should be felony prosecutions with the guilty doing “hard time.” Define wasteful medical procedures
as fraud and prosecute. Providers will quickly focus on maximizing healing, not income. We must
also find ways to incentivize private companies to release the power of software to pursue fraud in
these trillion dollar pots of money. More government clerks are not the answer.
There is no “one answer” to solve this problem. However, until the government demonstrates they can
manage what they control today, we should not give them more of our healthcare dollars to control.
3. Loosen the grip medical cartels have on the supply of services.
We must increase the supply of low-cost medical options to drive down prices. We need alternative
sources of quality care. It is time to let the market determine the number of doctors, nurses, and other
practitioners who want to compete for our health dollars. It is time for the federal government to make
it easier, not harder, for alternative providers, rapid clinics, etc. to serve patients by overriding state
legislatures dominated by local lobbyist groups.
4. Change a tax system that penalizes the middle class and self-employed
We need a single tax policy for everyone’s healthcare. Based on government decisions during WWII,
employer-paid insurance is now paid with pre-tax dollars, while others must pay with after-tax dollars.
To redress this:
 Healthcare costs paid by employers should be reported as taxable income.
 All taxpayers, whether they itemize or not, will then be able to deduct medical insurance and
out-of-pocket costs from their incomes. These deductions will NOT be subject to current
income limitations.
Insurance would no longer tie individuals to an employer. If you find a company without insurance,
that can pay you more, buy your own policy and you would be at least tax neutral. Eventually, all
government-provided care (except Medicare) could be eliminated and replaced with tax credits, like
the Earned Income Credit. The credit amount would increase at lower incomes. Credits would be used
to fund insurance and out-of-pocket expenses.
5. Return healthcare to free markets.
We must allow markets to reassert themselves. The White House Deputy Economic Director knows:
Consumers must regain control of how much we spend on healthcare. We must know what our care
really costs and decide when to get it. How can we do this? First, we must pay for most of our care,
out of our pockets.
Who could afford any healthcare? Until late in the 20th century, people paid their own doctor to keep
well. What free market changes would start driving out inefficiency and lowering costs?
 We should pay most of our own bills, just as we used to do. This would prevent most fraud,
allow us to evaluate whether treatments are wasteful, and lower overhead spent providing
medical care. Since most fees will be paid at the time of service, providers will benefit from
lower overhead, fewer bad debts, and improved cash flow.
 We must all pool our resources to insure against catastrophic health events. Americans should
have good, reasonable coverage to protect against these problems. These policies should be
available across state lines and priced based on proven indicators of good health: age, non-
smoking, low body-mass indexes that reflect weight control, low cholesterol levels, and low
blood pressure. With higher deductible policies, the cost of insurance should drop.
 Eliminate all state mandates. If people want extra coverage, let them buy it.

 All consumers (patients) should have the advantage of the lowest medical fees negotiated by
insurers and the government. Rates should be posted on the internet and patients should
receive a written statement of the price of treatment in advance. Similarly, doctors should not
be permitted to charge more than their lowest negotiated PPO rate, or 25% above the
Medicare rate, to any patient with coverage. Retail consumers should not be penalized when
we pay for services ourselves.
 Once these changes are made and reasonable insurance is available, there should be a “one-
time open enrollment period” where individuals can enter without consideration for pre-
existing conditions. Similarly, as young adults come off family plans they would have six
months to buy insurance. Once you are covered and paying for insurance, through work or
individually, you could not be denied future coverage or have the price of insurance
determined by your own health. If in the future, you elect to go without insurance there would
then be no guarantee of coverage for all health conditions and you would be responsible for
paying for all care out of current, or future, income. Bankruptcy must not protect someone
from avoiding sharing in the insurance pool.
Insurance companies are not to be trusted, but they should be given the opportunity to perform in this
free market. One hopes some will emerge that are run efficiently, realize the benefits of patient
controls through individual payment, and wish to maximize profits through policy volume. If this
solution does not work we may have to treat insurance companies like regulated utilities. Let us hope
that never occurs.
Remember: we have a crisis in the cost of healthcare and everyone is going to have to change
behaviors to solve it.
We can take these steps, and many more proposed by true experts, to lower the cost of healthcare
without impacting quality. We should be able to drive down costs to levels that existed before
government decided to “fix healthcare” in 1965. This means we all have to change:
 Consumers must live healthier lives, manage their own care, and bear more of the direct cost
of care. We must remember that, insured or not, we pay for healthcare through lower wages,
higher prices, or higher taxes.
 Providers must take a lower share of our national wealth. In return they would become less
likely to be sued, go unpaid, or bear excessive administrative costs.
 Government must back away from managing care and focus on policing illegal behaviors and
driving efficiency through sharing information.
Most importantly, government and industry leaders must push for change that is good for the country
rather than for contributors and lobbyists. Our founding fathers realized our republic would only
survive if its leaders possessed public virtue. This crisis is another test of that virtue and I fear as
Congress buys each vote with special interest gimmicks, our nation is further undermined.

Appendix A
Determining the number of healthcare workers is not readily available information, especially as one
goes back in time. For consistency we have used Census Bureau data on workers by Industry for
every ten years from 1940 until 2000. Over time, the Census has slightly changed how they classify
occupations and industries. The below are based on Industry tables, compared to the Occupation
tables. The latter only include people that do a particular job, such as Physicians and Surgeons or
Nurses. When one totals all healthcare Occupations in the Census they are less than the workers in the
healthcare Industries. Doctors offices, hospitals, etc. employ administrators, receptionists, clerical
workers, technicians, etc. that are not listed as a healthcare “occupations”, but are included in Industry
Tables. Prior to 1940, Industry data was not collected so only occupations are available. As such, we
include appropriate healthcare Occupations from the 1900 Census as a reference point. There were
fewer administrative and labor positions in the profession, so these numbers are slightly understated.

Notes 2000 1990 1980 1970 1960 1950 1940 1900

Total healthcare industry 1 11,690 9,683 7,251 4,246 2,589 1,629 1,019 328
Total employed persons 2 127,156 105,998 97,639 76,554 64,647 56,225 45,166 29,030
% of employed persons 9.2% 9.1% 7.4% 5.5% 4.0% 2.9% 2.3% 1.1%

Percent of GDP 3 13.8% 12.3% 9.1% 7.2% 5.2% 3.8% 2.9%

Ratio % GDP to % of
employed persons 150.1% 134.6% 122.5% 129.8% 129.8% 129.8% 129.8%

Source: US Census for all years. For 1900, only data by occupation is
1 available so this number is understated.
2 Source: US Census for all years.

Source: Centers for Medicare & Medicaid Services, Office of the Actuary,
3 National Health Statistics Group; US Department of Commerce.

The % of GDP for healthcare cost is based on Centers for Medicare & Medicaid data from 1960. To
obtain an estimate of prior years, notice the Ratio % GDP to the % of employed persons remained the
same from 1960 to 1970 (before the impact of the Great Society health programs had become fully
operational). Also, over this period there was not much of a “mix” change in the relationship of
doctors to nurses or specialists to general practitioners. As such, we “deduced” the cost as a
percentage of GDP by holding the above ratio constant. The percent of GDP could be slightly lower,
but it would not make a material difference to any conclusions we draw elsewhere in this document.
Appendix B
Waste per PricewaterhouseCoopers “The price of excess: Identifying waste in healthcare spending”.
Defensive medicine $210 billion
Preventable hospital readmissions $25 billion
Poorly managed diabetes $22 billion
Medical errors $17 billion
Unnecessary ER visits $14 billion
Treatment variations $10 billion
Hospital acquired infections $3 billion
Over-prescribing antibiotics $1 billion
Obesity/overweight $200 billion
Smoking $.5 to 191 billion
Non-adherence $100 billion
Alcohol abuse $2 billion
Claims processing $21 to $210 billion
Ineffective use of IT $81 to $88 billion
Staffing turnover $21 billion
Paper prescriptions $4 billion