The Efficiency Mandate: To Achieve Coverage, the U.S. Must Address Cost


It is now well established that Americans, in large majorities, favor universal health coverage. As witnessed in the first two Democratic debates, how we get there (Single Payer vs. extension of Obamacare) is another matter altogether.

295 million Americans have some form of health coverage (though increasing numbers are under-insured and vulnerable to the crushing effects of medical debt). That leaves 28 million uninsured, an issue easily resolved, according to former Obama staffer, Ezekiel Emanuel MD, through auto-enrollment, that is changing some existing policies to “enable the government agencies, hospitals, insurers and other organizations to enroll people in health insurance automatically when they show up for care or other benefits like food stamps.”

If one accepts it’s as easy as that, does that really bring to heel a Medical-Industrial Complex that has systematically focused on profitability over planning, and cures over care, while expending twice as much as all other developed nations? In other words, can America successfully expand health care as a right to all of its citizens without focusing on cost efficiency? 

The simple answer is “no”, for two reasons. First, excess profitability = greed = waste = inequity = unacceptable variability and poor outcomes. Second, equitable expansion of universal, high quality access to care requires capturing and carefully reapplying existing resources.

 It is estimated that concrete policy changes could capture between $100 billion and $200 billion in waste in the short term primarily through three sources.

1. Lowering drug prices:  Our 4% of the world’s population is currently responsible for nearly half of the world’s drug spending. Total health spending per capita in the US in 2018 was $1,443 annually, 54% more than the 2nd biggest spender, Switzerland. Nearly 13% of that spend was on drugs.

2. Capping hospital private insurance fees: According to a recent RAND study, hospitals now charge the private insurance companies which insure 160 million Americans 141% more than they do for Medicare patients. It was 6% more in 1996, and 75% more in 2012. If we mandated that charges could not exceed 120% of Medicare charges, it would capture $90 billion in savings a year according to a 2015 NBER policy analysis. Just freezing fees where they are would capture $30 billion.

3. Reforming billing practices: After WWII, American taxpayers funded the creation of national health plans (through the Marshall Plan) for Germany and Japan. Both countries have hundreds of insurance companies but centralized clearing houses for billing and insurance processing result in low billing cost. Were we to implement this in the US (where we have 16 health care employees for every one doctor), we would save $90 billion a year.

The Medical-Industrial Complex has burdened the United States with an untenable and flailing health care system. Extending coverage and access to this highly variable and markedly inequitable system may improve the lives of some, at the margins. But to truly make a difference in our nation’s health and productivity, and the creation of healthy Americans, true reform with a focus on cost efficiency and true health planning will be required.

Mike Magee is a Medical Historian and author of “Code Blue: Inside the Medical Industrial Complex” (Grove Atlantic/June, 2019).

15 replies »

  1. I agree with much of what you say…except that our so called “non-profits”(nsurers and hospital systems ) …are equally involved in the game.

  2. Mike–Yes!!

    Everything you say is so very true.

    I would only add that that “multi-plan” system that you suggest should include private insurers, not just govt plans.


    In the U.S. any govt plan (Medicare, Medicaid, etc.) is
    controlled by Congress. And sadly, lobbyists representing
    drug-makers, brand-name hospitals & specialists have great
    control over our Congress, thanks to the $$ they donate to campaigns.

    As a result, Congress insists that Medicare pay huge fees
    for treatments that we know do little or no good:
    most backsurgeries for lower-back pain, mastectomies to remove small,”in situ” tumors that, in most cases, will never expand or cause problems, and prostate surgery just because a PSA test suggests it might be needed. (We now know that PSA tests, alone, are not reliable indicators & most older patients will die of something else long before prostate cancer catches up with them.)

    The last two cases (unncessary breast cancer surgery & prostate
    cancer surgery) are just two of many examples of the many
    unnecessary surgeries that hike our health care bills. In these cases, doctor who practices “evidence-based, patient-centered medicine” will recommend “watchful waiting.”
    Wait & watch to see what is happening with that tiny tumor,
    or the patient’s prostate. They don’t rush to surgery.
    They see the patient on a regular basis. If & when surgery is needed, they recommend it. But not before.

    In Europe govt’s regulate healthcare & insist that doctors follow medical evidence (a.k.a. “evidence-based medicine.)

    In the U,S, doctors are allowed to follow “doctors’ druthters”–either doing what they have always done (because that was what theywere taught in med school 30 years ago), or because the treatment or med they are prescribing is lucrative–even though it is no better than less expensive treatments or meds. But their hospitals , or drug-makers have persuaded them that if it’s more expensive it must be better. (And they make more money when
    prescribing the more exp. treatment.)

    I am sorry to sound so hard on doctors. There are a great many
    doctors out there who I truly admire. (In my book, Money-Driven Medicine, I quote many of them.)

    They are dedicated, open-minded, intelligent physicians who practice “patient-driven medicine.” They put their patients first and do everything they can to find the best treatments for them.

    These doctors also understand that medicine is an infant science. In some cases, they will be wrong.That knowledge is humbling, and makes them keenly aware that they are fallible human beings. That knowledge makes them more human–and more

  3. When we added a high deductible option for employees we made a substantial contribution to employee hea!th savings accounts. …presto!…employees became more prudent users of medical services without risk of medical bankruptcy as we had generous catastrophic coverage once deductibles were met.

  4. The ACA has what I call Frankenstein high deductibles…agreed that were/are counterproductive.

    However, see this from the perhaps definitive study from Rand in 2011:
    “The largest-ever assessment of high-deductible health plans finds that while such plans significantly cut health spending. ..

    Studying more than 800,000 families from across the United States, researchers found that when people shifted into health insurance plans with high deductibles, their health spending dropped an average of 14 percent when compared to families in health plans with lower deductibles.”

  5. Paul-
    I agree that we routinely understate the knowledge and judgement of patients and their families in making informed and wise decisions. What many fail to appreciate is that the absence of a rational, consistent, and universally accessible system further undermines patient involvement and decision making. Tying coverage to employment, and selling patients on high deductible worthless coverage plans only serves to further undermine confidence and expand patient fears and risks of medical bankruptcy.
    Best, Mike

  6. The only way to reduce the waste of over-treatment and to drive efficiency is to free patients and doctors from the onslaughts of the “reformers” and allow patients and doctors to work together in a trusting relationship to improve the patient’s health. This will happen only when we patients can directly reap financial benefit by reducing the billions being wasted via overconsumption and (and excessive hidden prices) in health care services.

    All of the experts, however, seem to postulate that patients are too dumb or too unsophisticated to wisely consume health care. The reality is that these are fat times in the health care sector, and the giddy insiders don’t really want patients to bring about an end to the party.

  7. There are a lot of moving parts in any single payer plan beyond lowering administrative costs and drug prices. Most of those relate to the actual delivery of care as opposed to the financing of care. If reimbursement rates are pushed too low and the ability of hospitals and other providers to expand is curtailed, it could significantly increase wait times which will likely produce a backlash, especially among the upper middle class and probably the middle class as well. Personally, I think single payer advocates put way too much weight on keeping administrative costs as low as possible. Investing in advanced data analytics, for example, could more easily identify suspicious claims before they’re paid. That would reduce fraud costs which are difficult to quantify but raise administrative costs which are relatively easy to quantify.

    One of the most important lessons I learned during a 40 year career in the money management business is to ensure that you fully understand the consequences of being wrong before you make an investment. Single payer advocates can’t fathom any possibility that they could possibly be wrong about how much money we will save or what impact their new system will have on the actual delivery and coordination of care. If we pass this thing and they turn out to be wrong and after they’ve destroyed the private insurance industry, then what? People like choices in America. I think some extra administrative cost is a small price to pay to ensure that we have health insurance choices so if we’re not satisfied with our current plan, we can take our business elsewhere. Liberal expert Dr. Ezekiel Emanuel covers this subject much more comprehensively than I can in his book “Healthcare Guaranteed,” Chapter Seven.

    We can easily cover the remaining uninsured (except for illegal immigrants) with heavily subsidized insurance plans. This includes people who lose employer coverage because they quit, get laid off or get too sick to work. We should make sure that nobody pays more than 10% of pretax income for health insurance and everyone should be eligible for that cap, not just those with income below 400% of the FPL.

    Finally, we should understand that every developed country with a more comprehensive social safety net than we have, including national health insurance, taxes the middle class very heavily through income, payroll, property and value added taxes. For exxample, France raises 18% of GDP through payroll taxes vs. 6% in the U.S. VAT’s average 20% in Western Europe and reach 25% in Scandinavia. We don’t have one at all (yet). Just soaking the rich won’t come close to paying bills in the U.S. especially since we already have trillion dollar deficits before we add any new programs. By the way, Germany, Switzerland and Netherlands all use insurance companies to provide health insurance and pay claims.

  8. Maggie-
    Thanks so much for your thoughtful comments and kind support. As I outline in CODE BLUE: “To embrace true reform, we must follow the money and follow the data, and build on progress already made. Clearly the time has come for the US to join the rest of the industrialized world and consolidate health insurance into a standardized single-payer/multi-plan system that provides a secure package of basic benefits for all. The first step should be establishing minimum standards and a centralized control system, which would trigger a cascading series of changes leading to more detailed answers to the question “How do we make America healthy?”
    Here are ten reasons why consolidating financing under a single payer authority works so well:
    1. It provides unimpeded universal access to coverage for all.
    2. It lowers administrative costs by at least 50 percent, and overall health care expenses by 15 percent, according to an extensive economic health policy research study published in BMC Health Services Research in 2014.
    3. It is portable, allowing people to change jobs or geographic locations without worry.
    4. It can emphasize prevention by promoting health planning and budgeting priorities.
    5. It provides a standard basic benefit package for all, with flexibility for an individual to purchase additional services through private supplemental insurance.
    6. It offers a wider choice of doctors and hospitals, with coverage guaranteed, and limits “balanced billing” on essential services that are covered.
    7. It prohibits insurers from obstructing access to care with administrative obstacles to payment.
    8. By prioritizing care, the system increases wellness, therefore decreasing the cost of sickness.
    9. It forces transparent budgeting for outcomes, with a clear definition of goals and priorities, and promotes performance-based payments.
    10. It inserts public oversight of patient databases, preventing MIC use of data to maximize profits by steering patient choices and managing opaque MIC profit sharing.
    Best, Mike

  9. Thanks, Robert, for your thoughtful comment. I am a strong believer that trustworthy and reliable data and evidence, in concert with realistic application of technology, can be very helpful as we plan for and execute a comprehensive universal health care system. That said, these actions are no substitute for appropriate transparency, high integrity research reporting, and governmental oversight free of conflicts of interest. It is interesting to note that the budgets of both the AMA and the AAMC now rely on the sale of proprietary data products for over 50% of their revenue. In addition, as detailed in CODE BLUE, the history of conflict and fraud within our medical research establishment is problematic to say the least. To trust, we must verify. To care comprehensively, we must have a plan, and it must be well executed. Best, Mike

  10. Barry-
    You are absolutely correct to note that a range of social determinants adversely impact the health of Americans – especially at-risk populations. In all countries with national health plans, including Germany and Japan whose systems were recreated with our taxpayer funding after WW II, strategic health plans integrate funding and strategies to address these social factors. It is worthwhile to note that the U.S. is the only nation in the world that spends more on health delivery than all other social determinants (housing, nutrition, safety and security, education, environment) combined. A comprehensive approach to national and universal health care would accelerate health planning and the integration of strategies to abate the adverse effects of negative social determinants.
    Thanks, Mike

  11. Maggie, I would like to offer a few thoughts in response to your comment.

    First, health outcomes are usually measured by life expectancy and infant mortality. Both of those are heavily influenced by the incidence of poverty. We also have a higher rate of suicides, murders and drug overdoses in this country all of which have little or nothing to do with the healthcare system. Drug treatment has a huge relapse rate. Suicides are exacerbated by the easy availability of guns our high murder rate is also driven by the availability of guns and, to some extent, a culture of violence to settle disputes in some segments of our society. It’s also interesting to note that when wealthy foreigners need what Don Berwick calls rescue care, they like to come to the U.S. for treatment.

    Hospitals are paid on a DRG basis for surgical procedures. They have a strong disincentive to provide unnecessary care because they will make less money if they do so. If anything, they more often than not discharge patients too quickly than keep them too long. While some doctors practice more defensive medicine than others, I think most are trying to do the best they can for their patients while minimizing the chance of winding up in court to defend against a malpractice suit. Ordering that extra imaging test that may not be necessary and does increase healthcare costs and his own compensation but I don’t think that’s the primary motivation. We need medical tort reform to mitigate that problem. While there may be some unnecessary hip and knee replacements and back surgery, it’s important to note that 75% to 80% of our healthcare spending is attributable to the management of chronic disease including diabetes, asthma, CAD, CHF, COPD, hypertension and depression / mental illness.

    It would be a lot easier said than done to cap hospital charges at some reasonable percentage above Medicare rates but I think we could do it for the uninsured and for insured patients who have high deductible insurance plans and are still within their deductible. Between 80% and 85% of hospitals as measured by licensed inpatient beds are non-profit entities and their profit margins are quite low on average. The main variables impacting hospital profitability are average occupancy rate on the inpatient side, payer mix and case mix.

    Prescription drugs account for roughly 20% of insurers’ medical claims and closer to 17% for Medicare. 90% of prescription are now for generic drugs but they account for only about 28% of the dollars spent on drugs. The specialty drugs are killing us financially and a lot of the brand name drugs sell for a lot more here than they do in other countries. However, there is a bit of what economists call a fallacy of composition problem here. If we adopted something like a most favor nation approach insisting that we pay the lowest price than drugs sell for in any other developed country, drug companies would have to find a way to charge other countries more or become a drastically less profitable or even a money losing business which would have a significant adverse impact on future medical innovation.

    Regarding the insurance companies, I’m all for standardizing claims forms as much as possible. However, I think the potential for saving a lot of money on administrative costs with some sort of single payer system is significantly overstated. Private insurer pretax profit margins are in the mid-single digits at best now that they must spend at least 85% of premium revenue on medical claims for large groups and 80% for small groups and individuals. Also, a majority of their members are in self-funded employer plans operating under administrative services only (ASO) also called fee based contracts. The profit potential in dollars of fee based contracts is roughly one fifth of what insurers typically earn from full risk contracts. In addition, roughly 40% of the commercially insured non-Medicare and non-Medicaid membership is controlled by non-profit insurers including all of the Blues not owned by Anthem plus Kaiser, Harvard-Pilgrim, Medica, Puget Sound and others.

    Finally, your reference to doctors not being willing to say I’m sorry but there is nothing more that we can do in the case of late stage cancer treatment is not money driven, in my opinion. Instead, I think it’s a reluctance to withdraw hope combined with patients and family members who can’t or won’t let go. Patients may be encouraged to keep fighting and to not “give up.” If I could ban two words or expressions from the medical lexicon, it would be fight and give up. In the more socialist countries of Western Europe and elsewhere, part of the solidarity compact includes not imposing unreasonable costs and expectations on your fellow citizens. In America, by contrast, it’s I ant what I want when I want it and I expect someone else to pay for it. That needs to change.

  12. Applaud the objective. Two of your three recommendations are imposition of price controls which changes, but never solves, the problem. Efficiency is about doing more with less, as your smart centralized billing proposal would create. Health care is 20 years behind every other major industry in driving efficiencies (think Wal-Mart, Amazon) which were driven by data/analytic driven efficiencies. Health care lags because the data sucks, because we essentially are asking physicians to become data entry clerks. Every major medical society is now sponsoring clinical data registries, where members contribute their EMR data sets. Many are becoming quite large. These hold the potential to dramatically improve quality of care and codify best treatment methods and there is an army of Silicon Valley folks ready to apply all the fancy AI tools to drive those discoveries. What we really need are an army of data scribes to improve the entered data (which also would dramatically reduce the insurance mess); they would pay for themselves ten fold.

  13. Dr. Magee,

    Thank you so much for your candor.

    As you say, our “Medical-Industrial Complex that has systematically focused on profitability over planning, and cures over care.”
    This is why we spend twice as much as other industrialized nations.

    Meanwhile, extensive research, published in U.S. medical journals,
    show patient outcomes in the U.S. are generally no better than in
    countries that spend half as much.

    It’s worth noting that the U.S. is the only nation in the developed world that has chosen to turn healthcare into a “for-profit” enterprise.
    This helps explain why, even though we spend so much, U.S. care does not lead to better outcomes.

    As you point out: “Excess profitability = greed = waste = inequity = unacceptable variability and poor outcomes.”
    That sentence cuts to the heart of the problem.

    You are right to recommend that we cap how much hospitals can charge private insurers. If we want to offer high quality care to all Americans, this is essential.

    Today, brand-name hospitals have the leverage to force insurers to
    pay them twice as much as other hospitals charge for exactly the same
    tests and procedures. If the insurer doesn’t pay up, it knowsthat many of its customers will switch to another insurance company that will.

    This is beacuse many Americans think hospitals that charge more are better.

    But again medical research published in our most-respected medical
    journals shows that just isn’t true.

    Many of us assume that if something costs more, it is better.
    And in many parts of our consumer economy this is true. When I shop for a sweater, I can see the more expensive sweater is more desirable.

    But healthcare is different from most other products. The “consumer”
    (i.e. the patient) is not in a position to judge the quality of the care he is receiving because:

    In many cases, he is very sick, in pain and not able to comparison-shop.
    He can’t decide: “I’ll wait until the cost of this surgery comes down.”

    More importantly, he hasn’t been to medical school. He simply doesn’t know whether his hospital & doctor are following the latest and best medical evidence in deciding how to treat him.

    If he gets better, is that because they did the right thing?

    Was the hip replacement they recommended truly necessary? Does medical evidence show that a patient who fits his medical profile would have done as well–or better–with physical therapy, thus avoiding the expense and painful recovery,from hip surgery?

    If he doesn’t get better is this because the hospital or specialist should have done something different–something that a more expensive hospital or specialist would have done?

    Or is it just that in his case, there was no cure? We often forget that medicine is still an infant science. There is so much that we don’t know.

    This is why we can’t cure a great many cancers.
    But in our for-proft medical system, many providers are reluctant to say:
    “We’re very sorry, there is nothing more we can do.” So they continue to
    treat the cancer patient, long after there is any hope of helping him.

    You also are right that we need to reform & standardize how insurers
    bill us. If they all used the same forms, and followed the same rules,
    insurers ‘ administrative costs would be far lower. In turn, their bills would be much lower. And hospitals & doctors wouldn’t have to spend so much time deciphering those bills.

    As you say, we also need to bring down drug costs. In our for-profit healthcare system, we let drug-makers, like specailists & hospitals,
    charge whatever they choose.

    In every other industrailized country, drug prices, like the prices
    doctors & hospitals can charge, are regulated by government.

    But as you suggest in your reply to Barry Carol, drug prices are
    “low-hanging fruit.”
    If you look at a pie chart of what we spend on medical care in the U.S.
    drugs cost far less than what we pay hospitals and specialists.

    Finally, the bottom line is that we need to make healthcare far more

    Our for-profit system encourages over-treatment– toomany
    surgeries & meds that expose patients to unnecessary risks without
    benefit. In our fee-for-service, for-profit system, providers are paid
    more each time they prescribe a medicine, order a test, or perform a

    Again, I can’t thank you enough for your post.
    And I look forward to reading your new book.

    Maggie Mahar

  14. Barry-
    Many thanks for your thoughtful comment. As you lay out, there are a wide range of opportunities to achieve efficiency while addressing the pressing need for universal and equitable access to high quality care. In CODE BLUE I list the major opportunities and advocate for reinstitution of critical checks and balances, elimination of waste wherever possible, and careful strategic national health planning. Addressing fraud in pharmaceuticals, including generics, and elimination of DTC advertising and the promotion and overuse of pharmaceuticals are low hanging fruit. Finally, consolidating billing would bring wells relief to both patients and their physicians and nurses.
    Best, Mike

  15. First, with respect to prescription drugs, some 90% of all prescription are now for generic drugs which are, on average, actually cheaper in the U.S. than in most other developed countries. It’s the specialty drugs that are killing us. They account for about 2% prescriptions written but 37% of our drug spending and growing. The question I always ask is how profitable to drug companies need to be in order to provide their investors with a satisfactory risk adjusted return vs. other investment alternatives? I get that new drug development is expensive and there are many failures along the way but some new gene therapies are now priced in the seven figures. At some point, payers need to refuse to cover these drugs even if they work. The uncomfortable question that never gets asked is how much should society be expected to pay to keep one person alive?

    I don’t think most hospitals are riddled with inefficiency and waste. The expectations of American patients may just be higher than in other countries and everyone who works in a hospital likely earns more money than their counterparts in other countries. Profitability among hospitals varies mainly based on occupancy rates, payer mix and case mix. I do think that charges to the uninsured and those with high deductible insurance plans should be capped at 125% of Medicare. Many Medicare Advantage plans already exclude the most expensive hospitals.

    On the administrative side, consolidation among health insurers have reduced the number of permutations and combinations of insurance plans and that trend will probably continue. Medicare imposes plenty of documentation requirements on doctors and hospitals and audit exposure as well but that is not reflected anywhere in Medicare’s administrative costs.

    I think we would be better served if we could reform our tort litigation system in a way that gives doctors safe harbor protection from lawsuits if they follow evidence based guidelines where they exist or provide adequate documentation for deviating from them when they think it’s appropriate to do so. We also need to get malpractice lawsuits out of the hands of juries who can be easily swayed by emotion and turn them over to health courts and judges with the power to hire neutral experts to sort through conflicting scientific claims. That could reduce defensive medicine over time. Second, we need to reform our approach to end of life care by encouraging patients, especially older patients, to execute a living will, advance directive or a POLST. Also, when the patient can’t communicate and there is no family member to speak on his or her behalf, no heroics should be the default protocol rather than do everything no matter how futile. We also need robust price transparency tools so doctors and their staffs can more easily steer patients to the most cost-effective high quality providers. Finally, we need to reduce our obesity rate which is they highest in the world by far. We have more than twice as many obese people as most countries in Western Europe and 10 times as many as most Asian countries as a percentage of the population. Our own obesity rate was half its current level in the late 1970’s. I attribute most of the growth to the proliferation of fast food restaurants and increased portion sizes.

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