I think we do go overboard on expensive testing done only as a CYA for malpractice suits, which is certainly inefficient and wasteful,
I used to believe that until a few years ago when a handful of states like Texas did "tort reform" to limit liability to something rather small, like $100K. It had barely any affect on the cost of healthcare in those states.
Since then I've come to believe that the problem is money - all the healthcare companies in the business to make a profit. It is in their interest to go overboard on procedures and diagnostics, especially when they have been able to move a significant part of those diagnostics in house. I've seen it myself when I went to the doctor with a sore throat with symptoms that clearly contra-indicated strep but they wanted to test for strep anyway - I later found out they had recently bought the equipment to do strep testing in house.
Here is a good article that examines massive health care costs in a town adjacent to one with normal health care costs.
http://www.newyorker.com/reporting/2009/06/01/090601fa_fact_gawande?currentPage=all