Robert Evans, the Canadian health economist, insightfully observed, “Every dollar of health-care expenditure is also a dollar of someone's income.” For decades citizens, health policy scholars, and public officials have lamented the inexorable rise of health costs, which now approach one of every five dollars within the American economy. Despite what appears to be a universal concern about growing costs, the problem persists. Cost control is difficult because the benefits of restraints are broadly distributed and not immediately noticed. Cost-control success threatens the income of a large swath of the American public, which includes not just physicians but nurses, salespeople, and facility middle managers.

There are two general approaches to explaining the problem. The macroapproach is exemplified by the National Health Expenditures Team annual report, which is a comprehensive and definitive analysis of national health spending each year. Annual comparisons allow us...

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