The Big Cost of Big Medicine: Calculating the Rent in Private Healthcare

Abstract

As a country, the United States spends significantly more on healthcare than other advanced industrialized countries, and Americans have comparably worse health outcomes. Both are developments of the last four decades. In this paper, we present a marco, long-term explanation of these adverse changes by looking at the evolution of antitrust and patent laws in the United States, surveying the literature on how change in concentration and patent laws have led to increased prices, and constructing a counterfactual national health expenditure series for 1980 through 2006. We find that the cumulative excess cost of private healthcare spending on hospitals, physician groups, prescription drugs, and net insurance from 1980 until 2006 is between $3 and $6 trillion.

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