Current health system reform efforts are based on the notion that the government can best design a cost efficient system. The government already operates several health care systems, including Medicare and Medicaid. Despite the development of a plethora of cost-control initiatives, such as price-fixing, utilization and peer review, and Diagnostic Related Groups, the government has been unable to control the burgeoning costs of these programs. Health system reform efforts appear directed toward the expansion of many of these same failed efforts. Only by first evaluating where the money goes can real efforts at improving the economics of the system--without jeopardizing quality of care--be successful. The author has examined the Louisiana Medicaid program in a previous article. This article examines the function and expenditures of the Louisiana Medicare program: Part B, the "physician's component" and Part A, the "hospital component."