Rising medical costs are a worldwide problem, but nowhere are they higher than in the U.S. Although Americans with good health insurance coverage may get the best medical treatment in the world, the health of the average American, as measured by life expectancy and infant mortality, is below the average of other major industrial countries. Inefficiency, fraud and the expense of malpractice suits are often blamed for high U.S. costs, but the major reason is overinvestment in technology and personnel. America leads the world in expensive diagnostic and therapeutic procedures, such as organ transplants, coronary artery bypass surgery and magnetic resonance imaging. Orange County, California, for example, has more MRI machines than all of Canada.

Federal policy since World War II has emphasized medical technology and the widespread building of hospitals, even in rural areas. Other industrial countries, in contrast, followed the more cost-effective alternative of building up regional centers. The U.S. has long overinvested in the training of specialists at the expense of primary physicians, leading to a large surplus of specialists. Because specialists have economic incentives to perform unnecessary procedures, they may contribute to cost inflation.

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