Many medical innovations have come from countries other than the US, and they continue to.
This would suggest that a significant percentage of the excess costs are going to medical innovation; instead at each step along the way (from hospital to insurer to reseller to medical device and pharmaceutical company) 15-30% is skimmed in admin and billing fees and other overhead.
It is a total myth that the US is either the sole innovator or the sole supplier of funding for medicine.
So who does fund significant medical research?
On the most part private institutions (think howard hughes medical institute) and universities and their endowments, and federal and state government grants.
There are significant research partnerships with pharmaceutical companies and they do spend huge numbers on R&D but significant quantities of this are iterative rather than truly innovative, which is work that is done more often by PhD's and postdocs as they have more to gain and less to loose by going out in a limb with their research.
And this research goes on in every country in the world.
The US may account for more than the rest of the world's aggregate defence spending but it is stretching it to suggest that the same is true for medical research.
Everything from basic cancer therapies to stem cells to the human genome were invented / discovered / cracked by US money. And it's a very, very long list that covers most types of advanced drugs and therapies in some form or another. Growing organs? Pioneered by US research. Robotic surgery? US money.
It is however true that a lot of US medical costs are tied up in labor, namely healthcare workers and administration. Nobody wants to talk about what happens when you cut costs there however (unemployment, lower wages, et al.).
The market will adjust. Other countries have lower costs there, and no worse unemployement (or general wage levels).