Waste, economists and American healthcare

Abstract

Twenty-five years ago, Uwe Reinhardt pointed out that sheer bureaucratic waste, particularly in the private sector, accounted for much of the extraordinarily high cost of American healthcare. Last year an expert panel of the Institute of Medicine reconfirmed his point, estimating that in 2009, administrative waste accounted for $190 billion out of a total of $765 billion in various forms of waste - 31% of overall American spending on healthcare. Reinhardt recently noted a peculiar schizophrenia among American economists, simultaneously deploring this monumental waste while celebrating the contribution of healthcare, and particularly medical research, to the American economy. The apparent paradox may arise from a confusion between the meanings of "value" in economic and everyday language, and from economists' tendency to create pseudo-aggregates of diverse and non-commensurate entities.