Where the Money Actually Goes

Rather than classifying healthcare spending by venue, we looked at where the money was actually going in order to determine how much is being spent on patient care and other activities. About 28% of US healthcare spending goes to curing and caring for patients. The other 72% is overhead.

Our approach is simple. Add up the compensation of doctors, nurses, and others who directly care for patients, which sums to 15% of spend. Then add the costs of drugs, equipment, and diagnostics/imaging spending needed to treat patients - 13% of spend.

72% overhead is not necessarily bad. We need buildings, administrators, and leaders of large physician groups. Comparing other services industries would, however, call for a 1:1 ratio between customer-facing spend and overhead rather than a 1:2.5 ratio.

So a $1.8 trillion cut in annual spending on overhead.