The United States spends significantly more on healthcare than other nations, but its outcomes are not better. Life expectancy in the U.S. is declining.

In 2022, U.S. healthcare spending reached $4.4 trillion, which averages almost $13,000 per person. In 2022, healthcare spending consumed 19.7% of GDP. Healthcare spending in the U.S. is 50% higher than in other wealthy nations. The U.S. must reduce healthcare spending. Rising healthcare spending is a key driver of America‘s unsustainable national debt.

Moreover, because productivity growth in the healthcare sector is negligible, as spending on healthcare increases as a percentage of GDP, overall productivity growth is diminished.

To put the healthcare spending crisis in perspective, one fact stands out. In 1960, healthcare consumed 5% of GDP. Today it consumes almost 20% of GDP. The nation needs outstanding healthcare. But when healthcare spending is rising and life expectancy is declining, something is wrong.

The U.S. must institute sensible healthcare cost reforms. Hard choices are necessary.

First, spending on Medicaid should be frozen at current levels. The data are clear that spending on Medicaid has little to no impact on the physical health and life expectancy of Medicaid recipients. Beneficiaries consume more healthcare, but more consumption does not improve physical outcomes. Medicaid beneficiaries report less emotional distress because they have access to Medicaid, but the facts show that their physical health does not improve .

Freezing Medicaid spending will diminish wasteful spending. The hospital emergency room will be the point of contact for people with Medicaid. In the emergency room, triage is routine. The federal government can compensate hospital emergency rooms based on outcomes.

Next, the Justice Department and the Federal Trade Commission should spend more time looking at market concentration in the healthcare field. Ninety percent of metropolitan statistical areas are highly concentrated for hospitals, 65% for specialist positions, and 39% for primary care physicians. High market concentrations lead to higher prices. Research says that healthcare prices are 20% higher in highly concentrated markets.

The medical education system can shorten the period of medical doctor training. More doctors means better healthcare and more competition. Medical doctor training is two to four years shorter in Great Britain and Canada than in the U.S. The data show medical care is similar among the three countries. As an associated point, the U.S. should impose a price floor on prescription drug exports abroad. This would reduce drug research and development costs from falling onto American heads.

The healthcare system should increase reliance on physician assistants. Compensation for a physician assistant is about half that of a medical doctor. Physician assistants order more diagnostic tests than medical doctors, but post-diagnostic outcomes are similar. The annual cost savings from increased use of physician assistants is five times the cost of more tests.

Hospital care is the largest single source of expenditures within the healthcare system. One factor behind high prices is payment differentials based on location of care, in a hospital or in a doctor’s office. Medicare could save $150 billion over 10 years if it adopted policies to encourage site-neutral payments. The cost of a medical treatment should be the same whether it takes place in the hospital outpatient department or in the doctor’s office. The data show that as market concentration increases with regard to healthcare services, hospitals drive physicians to convert doctor’s office tests to the more expensive hospital outpatient department.

This practice should be stopped by antitrust regulators. An open checkbook for healthcare expenditures is no longer an option.

James Rogan is a former U.S. foreign service officer who later worked in finance and law for 30 years. He writes  a daily note  on finance and the economy, politics, sociology, and criminal justice.