In order to truly stabilize the economy and rescue Medicare from financial collapse, the Obama administration knows it has to do something about the elephant in the room: ever-rising health care costs. In this week’s New Yorker, surgeon-writer Atul Gawande presents an eye-opening discourse on why American health care costs have ballooned in the last decade and what can done about it.

To make his case, Gawande visits McAllen, Texas, which is one of the most expensive health-care markets in the country. In 2006, Medicare spent $15,000 per enrollee in McAllen (almost twice the national average); only Miami, Gawande reports, spent more per person on health care. The reason? Too much medicine. Doctors in McAllen prescribe far more tests, treatments and surgery than doctors in a nearby Texas town and nationwide. Yet the quality of health care is no better in McAllen, and Gawande cites research showing that such overuse of medicine may actually make patients worse.

So why are doctors in McAllen so aggressive? After interviewing everyone in sight, Gawande concludes that many doctors in this Texas town, unlike doctors in more conservative cities like Seattle, Sacramento, Boise and even nearby El Paso, see their practice as a money-making “revenue stream.” They recognize that the more tests and treatments they prescribe, the more procedures they do, the more money they’ll make.

The solution? Gawande argues that rather penalizing the money-savvy docs of McAllen, the Obama administration should begin rewarding the doctors and non-profit institutions (hospitals like the Mayo Clinic and health plans like Intermountain and Kaiser) that band together to practice a more preventative, conservative type of medicine and discourage “overtreatment…and sheer profiteering.”

Gawande notes that “we are witnessing a battle for the soul of American medicine” and concludes that unless we begin rewarding “the leaders who are trying to a build a new generation of Mayos…McAllen won’t be an outlier. It will be our future.”

This is a scary article and a must read.