The largest of these factors, the waste of medical resources, is also the least visible.  It is mostly a productivity loss preventing hospitals, doctors and expensive equipment from treating more patients, increasing the cost per patient. For example, hospitals may schedule only six heart patients a day for nuclear stress tests using the same equipment and personnel that enables a cardiologist’s private clinic to examine 20.  Doctors see fewer patients because of the time spent between examinations to make lengthy annotations, recover dues, or perform other extraneous tasks.  These are consequences of a litigious climate, over-regulation and restrictive work procedures.  A smaller cause is some caregivers performing unnecessary tests and procedures only to profit themselves (as opposed to avoiding legal exposure through practice of “defensive medicine” as described below.)   This overall efficiency loss is about $973 per capita.(ii)

The extra administrative costs are primarily the result of a large number of insurers offering thousands of disparate plans, resulting in high overhead costs and expanded bureaucracy of payers and providers alike.  Bureaucracy is 31 percent of U.S. health costs compared to Canada’s 16.7 percent, according to an August 2003 report in the New England Journal of Medicine.(iii)  This imposes an added $915 per capita cost.

Defensive medicine is unnecessary tests and procedures conducted out of fear of lawsuits, rather than to benefit patients.  A May 1996 Stanford study put them at up to nine percent of costs(iv) or $576 per capita in 2005. 

Remarkably, the malpractice premium paid by U.S. caregivers is the smallest of the seven factors.  The Congressional Budget Office (CBO) estimates this to be just 1.5 percent of health expenses, or $97 per capita. 

While non-physician personnel have no significant wage differences, annual U.S. physician salaries averaged $199,000 in 1996 compared to a $70,300 OECD median.(v)  In 2005 terms, this disparity imposed an additional $375 in U.S. per capita costs.  In most countries, the government acts to keep physician supply above anticipated demand.  But in the U.S., it is the doctor comprised private bodies like the American Medical Association (AMA), the Accreditation Council for Graduate Medical Education (ACGME) and the Residency Review Committees (RRC) that control the physician pipeline.  To benefit their profession by keeping salaries high they have an adverse incentive to maintain supply well below demand levels.(vi)  The OECD has a median of 3.3 physicians per 1000 people, while the U.S. has only 2.4.  More U.S. physicians choosing to work fewer hours exacerbate this relative shortage, as do their extra administrative tasks that further reduce face time with patients.

Over-priced drugs cost Americans $317 per capita more than the OECD median.(vii)  Critics decry what they call drug industry greed, wastefulness and price gouging, while the drug companies defend the current U.S. monopoly pricing as being part of the free market system that makes the industry viable.

The last factor is treatments that reduce disabilities and improve patient comfort and productivity, even if they do not prolong life.  The U.S. has more of these because of de facto rationing through long waiting periods in other countries.  This is the only part where Americans are getting a significant benefit in exchange for their higher healthcare payout.  But based on OECD and U.S. Healthcare Utilization Project data, these differential U.S. costs are only about $225 per capita or 3.5% of the total.(viii)

Understanding these higher cost contributors is a diagnostic first step.  The moves for reform are gaining momentum as the health burden worsens.  Remedies face political rather than administrative hurdles.  The extent to which these are overcome will determine the well being of U.S. patients, not just of the legal and healthcare industry.