Medicare is to blame, and Medicare for All would only worsen it.

There are many reasons for the physician shortage, but burnout and early exits from clinical medicine are major drivers. These physicians who leave practice blame administrative hassle as a leading reason.

Medicare for All advocates claim that removing private insurance would alleviate this burden, allowing doctors to practice medicine again. This is a dangerous misconception, and I warn my fellow physicians not to be taken in by this siren’s song. Most of the micromanagement in the working life of physicians comes not from private insurance, but from Medicare.

Like most physicians, I deal with the administrative hassle imposed by private insurance: the prior authorization, the claims denials. But those are just a minuscule part of the problem. I spend more hours of my day glued to a computer to satisfy Medicare’s rules.

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Medicare sets the “conditions of participation” for hospitals and payment rules for doctors. These regulations give administrators sovereignty over the practice of medicine. When Medicare is the major source of revenue, it is the primary customer, and its preferences must be given priority. For example, doctors’ concerns over non-working operating room equipment are ignored while administrators threaten them for not copy-pasting the correct checklist into their computerized notes. Medicare prioritizes the checklists more than the working operating room equipment. Administrators take up hours of clinicians’ time hounding them about documenting quality scores. Medicare prioritizes computerized data input over face-to-face patient care.

When Medicare pays a hospital, it relies on very specific documentation from the doctor. Does the patient meet inpatient criteria? What diagnosis category are they in? Do they have a “major complication or comorbidity”? This all relies on if certain words were in the physician notes. So hospitals hire teams of consultants to comb through patient charts, then harass the doctors to edit their notes, making sure the hospital maximizes billing.

Medicare’s quality metrics add even more demands. These schemes, intended to reward hospitals with the best outcomes, have become exercises in metric manipulation and coding games, again largely falling on the doctors. A 2016 study found physicians spent 2.6 hours a week on quality reporting. A study of heart-failure patients even linked a readmission-reduction program to increased mortality. MedPAC, which advises Congress on Medicare policy, recommended replacing many of the programs. Yet, Medicare continues them.

Physicians have also seen their independence vanish due to Medicare rules. In 2024, 57.5% of physicians were employees of large hospital systems, up from 41.8% in 2012. Adjusted for inflation in practice costs, Medicare physician payment has fallen 33% from 2001 to 2026, while the cost to operate a practice has gone up. Meanwhile, federal policy gives hospitals financial advantages, such as facility fees and 340B benefits, that are unavailable to independent practices. Thus, many doctors, unable to maintain their overhead costs, sell to hospitals who have these financial arbitrage opportunities.

Medicare also restricts physicians from building alternatives. Section 6001 of the Affordable Care Act bars new physician-owned hospitals from billing Medicare. Stark Law restricts physicians from referring Medicare patients to ancillary services they own, such as an MRI or physical therapy clinic. Medicare favors large, consolidated hospital systems over independent practices, steadily eroding physician autonomy.

So why would physicians want MORE of Medicare?

I can see the allure. After a particularly frustrating experience with private insurance, doctors might be excused for wanting to eliminate those complex middlemen with their utilization management rules. Indeed, Medicare for All supporters promise simpler billing. They promise they will get rid of the quality metrics, the declining reimbursement, and the complexity.

But this is not realistic. Healthcare utilization would increase under Medicare for All. The CBO predicts this. We have multiple randomized studies which show utilization goes up as patients’ out-of-pocket costs go down, and the increased utilization is in both less-effective and more-effective care. So, to reduce the use of that low-value care and keep from overwhelming the system there must be some sort of utilization management.

We ran this experiment in the early days of Medicare. The original rules for doctors had no modern quality metrics and far simpler coding and utilization controls. Doctors could bill Medicare based on their “customary” charges. Costs rose rapidly. Over the years, Medicare slowly added all the utilization control schemes outlined above. They implemented price controls. They cut reimbursement. They restricted doctors from self-referral. They added quality metrics.

Medicare for All might promise simplification and high reimbursement for doctors. It won’t deliver. Not without blowing an even bigger hole in the federal deficit. It’s an economic impossibility.

The answer for physician burnout and the resulting shortage is not going to be an expansion of Medicare. It’s going to be deregulation, allowing physician ownership and autonomy to once again flourish. Doctors are doing this outside the system right now, offering low-price and high-quality alternatives. Physician-owned hospitals have high patient-experience scores. Direct primary care doctors report high practice satisfaction. Cash-pay surgery centers are thriving.

Doctors working in these environments, outside Medicare, report huge reductions in compliance costs and office staff. They aren’t micromanaged by administrators. They aren’t glued to a computer instead of taking care of patients.

They’re just practicing medicine again.

Doctors need that to stay committed to clinical medicine. More Medicare would only make the doctor shortage worse.

Better than a yard sign or a “we are worried about you!” spam text, the white coat is a great vehicle for reaching voters.

That is the invitation in Jerry Avorn’s MedPage Today essay on politics in the patient encounter. He suggests that clinicians begin discussions with patients regarding the federal budget reductions being made in coverage, describe the impending harm, and encourage them to vote to correct what has been done. He draws a parallel between the responsibility to warn a patient of a tumor or a dangerous arrhythmia. At last, a way to give our political opinions the authority of a cancer diagnosis.

Avorn says this need not involve directing patients to a particular candidate, but his political leanings are painfully obvious. Of course, nobody probably questions his sneering assertions in his political bubble. After all, only one side of the political spectrum actually cares about patients, public health, or basic human decency. The campaign message is doing just fine without speaking a candidate’s name.

He even suggests placing this educational burden upon each patient’s active problem list. I envision the evaluation: Diabetes, Hypertension and a lack of appreciation for the potential electoral impact of the physician’s policy preferences. We are told that initiating these conversations is an ethical obligation. Clearly, it becomes easier to blur the lines between providing care to someone and recruiting them to support your cause when you declare yourself the more righteous party.

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But would Avorn extend the same ethical permission to a physician whose politics ran in the opposite direction?

“Mrs. Jones, I apologize that your insurance premium is so high. The Affordable Care Act mandates a wider array of benefits and prohibits insurers from charging prices based on medical risk. You may wish to consider the politicians who authored those decisions prior to voting. I would be remiss not to address such an important aspect of your care.”

Or consider a patient facing a long wait for an appointment. Surely a conservative physician could regard that as the ideal moment to explain California’s decision to spend state money expanding coverage to undocumented immigrants. A coverage dispute could prompt an equally earnest lecture about Medi-Cal paying for adult gender-transition procedures. Resources are finite; elections have consequences; how fortunate that the doctor is available to explain both.

An additional opportunity for enlightening bedside commentary exists within hospitals. A patient’s formerly independent specialist was purchased by a large, corporate hospital system. Now there’s a facility fee tacked on to the bill. Shall we explain that hospitals are the largest category of healthcare spending. Additionally shouldn’t we discuss how federal policy generates economic advantages for hospitals owning medical facilities? Finally, can we point out how 340B programs generate profit for hospitals to acquire physician practices?

We could even mention Chuck Schumer’s April 2026 promise that hospitals would have “a seat at the table” under a future Democratic majority. He also opposed site-neutral payment cuts, and some of his Democratic colleagues advocate expanding 340B, which IQVIA estimates increases health-plan costs and puts upward pressure on insurance premiums. What an educational moment for a patient wondering whose interests healthcare policy serves. Perhaps we should hand out the hospital lobby’s seating chart with the after-visit summary.

Now imagine a future Congress enacts Medicare for All, replacing ordinary private coverage. Demand subsequently outstrips the system’s capacity, and a patient’s operation is delayed. Under Avorn’s proposed approach, a physician could offer the following helpful consultation:

“Mrs. Brown, I’m sorry your private insurance is gone. Congress prohibited insurers from offering coverage that duplicates the government plan. You have public coverage now, which drastically cut pay to doctors, prompting many to retire and decimating supply. Demand has outrun the available operating rooms and clinicians. Before the next election, you might ask which candidates supported taking away your old arrangement. I’m telling you this because I care about your health.”

The 2025 Medicare for All bill would prohibit private coverage, including employer coverage, once fully implemented. CBO’s illustrative single-payer analysis projects demand rising faster than supply, producing more congestion, delays, and forgone care.

Will Avorn embrace that conversation as an example of fulfilling the physician’s ethical obligations? Or would he characterize the tone as manipulative and reduce the conversation to an abuse of the patient’s vulnerability?

His own account of emergency-department crowding illustrates the problem with presenting political forecasts as clinical findings. He predicts a large influx of patients who lose insurance and consequently lose access to other care. Yet the randomized Oregon Medicaid experiment found that gaining coverage increased emergency-department use without any improvement in health outcomes. Several other studies show Medicaid patients face substantial obstacles in securing clinic appointments. It would be tough to fit the economic explanation into a standard 15-minute office visit, but I guess we doctors are obligated to try.

The AMA’s ethics guidance explicitly advises physicians to avoid initiating political conversations during clinical encounters because of patients’ vulnerability and the unequal relationship. Thus, I recommend a different hypothetical than Avorn’s, in which a patient who understands your reasoning and acknowledges the trade-offs yet still disagrees with you. Will he continue to be viewed as a competent adult or will the educational experience require another visit?

The holier-than-thou logic is hard to miss: Once the physician’s preferred politics are defined as the patient’s health interests, then opposing viewpoints are likely going to be seen as ignorance. It appears Avron can’t even fathom a world where intelligent, well-meaning people disagree with the downstream consequences of policies.

Patients disagree with me all the time. They disregard my recommendations, they seek second opinions (which I do encourage), and many actually do try to inject politics into our conversations. I always sidestep that in the exam room. A patient should not have to decide whether challenging my political sermon might make the person responsible for his care think less of him.

The patient came for medical help. If I want his vote, I can take off the white coat, leave the exam room, and make my argument where he is free to walk away.

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Joe’s doctor recommends a number of things. Maybe he needs a glucometer, or a GLP-1, or screening and lab tests, or just to eat healthier and go to the gym. Joe puts these off. The time commitment and money just make those things lower priorities for him..

Joe can afford the care by giving up something else he wants. He can cut back on food delivery, a streaming subscription, or vacation savings. Like anyone else, he has to choose between competing uses of his money. He just prefers spending some of his ordinary income on dinner delivered to his door.

Of course, as doctors, we want him to get the care. We think the screening is a better use of his resources than another streaming subscription. Helping people avoid preventable illness is part of the job. But Joe disagrees with the priorities of the physician and public health experts. How much freedom are we prepared to give him then?

I have repeatedly criticized the US healthcare system for routing routine care through third party payments. The standard objection I hear is that people who control their healthcare spending, like Joe, may buy less care than we think they should.

Milton Friedman captured this disconnect in Capitalism and Freedom:

“A major source of objection to a free economy is precisely that it…gives people what they want instead of what a particular group thinks they ought to want. Underlying most arguments against the free market is a lack of belief in freedom itself.”

The difficult part of patient choice is accepting those choices. As doctors, we see this all the time. Patients reject our advice for many reasons, financial and otherwise.

If someone is truly destitute, subsidies should ensure they don’t go hungry because they are rationing poverty-level wages. That’s exactly why we give cash-equivalent subsidies (SNAP) to the poor. This helps them get food without sacrificing their rent money.

Yet, outside of basic poverty, our society must decide who deserves a subsidy for basic medical care. There are stories of people cutting back on spending in other areas so they can afford their medications or doctor visits. That sounds harsh, but what are they cutting back on? Is it streaming services, Starbucks, vacations, or their kids’ school supplies? That distinction matters. Joe can pay for care by giving up something he wants.

It certainly sounds unfair to ask someone to cut back on their vacation savings so they can pay for medical treatment. However, if they don’t, we are asking American taxpayers to subsidize that person’s vacations. If someone wants to forego medical care so they can take a vacation, should we ask American taxpayers to pay for their medical care so they can take that vacation?

As Thomas Sowell eloquently states, “The first lesson of economics is scarcity: There is never enough of anything to fully satisfy all those who want it.” We routinely make room in our budgets for food, housing, and our children’s education by giving up other purchases. Even prosperity doesn’t eliminate this scarcity. That is part of life. And by making choices between those purchases, we are transmitting our values. If we value that vacation more than our own health, that is a choice.

Respecting Joe’s right to refuse care does not require taxpayers to spare him financial tradeoffs he can afford.

That should also make doctors examine our position in the transaction. A practice selling visits or screenings can benefit financially when patients purchase more of them. The people recommending a service may sincerely believe in it and earn their living providing it. Doctors can be genuinely doing good things for their patients while making a living at it. So can a personal trainer, nutritionist, or therapist. Someone selling healing crystals probably believes in their product as well.

“Preventive” does not exempt a service from scrutiny either. The shifting nature of these recommendations also shows there is room for personal preference. The case for screening should survive a discussion of its burdens, limitations, and alternatives. A patient who understands the discussion and still declines has not necessarily exposed a failure of communication. Sometimes he has simply made a decision, no different than ignoring the doctor’s advice to go to the gym or exchange the hamburger for a salad.

Unfortunately, that decision may eventually impose costs on others. Skipping screenings, ignoring minor issues, and poor self-care can impose later costs on an insurer or taxpayers. Shared financing creates a legitimate interest in encouraging beneficial care. But that interest needs limits, as deferring to that as the reason to compel resource redistribution is a slippery slope. Pooling some of those costs cannot give the payer unlimited authority over how people live.

Payers can try to incentivize good, healthy behavior, though. For example, OneHealth Nebraska, a network of independent practices, offers a self-funded health plan through UNICO and Auxiant for member physician groups with at least 20 enrolled employees. The plan offered financial benefits for primary care visits and laboratory testing. The arrangement gave employees a financial reason to do things their clinicians wanted them to do. Its published plan information also lists a $220-per-member wellness reward under its separate Medica fully insured offering. Reducing financial barriers to care, and even giving rewards for following that behavior may encourage patients to obtain beneficial care.

A private company offering incentives to reward healthy behavior is a different proposition than saying we must subsidize everyone’s healthcare so nobody needs to cancel Netflix to afford their antihypertensives. One is a decision made at a local level by a private company. The other is forceful redistribution of resources to subsidize lifestyle choices of people like Joe, who can afford care by giving up other purchases.

As an advocate of a freer healthcare system, I will admit that some beneficial care goes undone because people choose not to obtain it. That happens in any healthcare system in the world. If all care is subsidized so the wait times are long, many forego care rather than wait in line. The end result is no different than people foregoing care because they would rather not pay. We can work to reduce those numbers through access, better service, and persuasion. We cannot guarantee that everyone will make the choice we favor while leaving the choice with them.

Joe should definitely make his next appointment. He should do his screening tests. But if he wants to pay for his DoorDash instead, that’s his decision. The taxpayers just shouldn’t subsidize it.

For many people, that somebody is the American taxpayer, through Medicare or Medicaid. You never have to decide whether the brace is worth its price. You may not even know the price. The surgeon owns the company supplying it, and the company makes money on the sale.

It turns out that nearly everyone leaves this clinic with a brace.

This is a hypothetical, but it’s not unheard of. The surgeon recommends a product, the patient accepts it, and someone else pays. Even if a brace is a reasonable option, we don’t know what value people put on that option, because the patient never sees a price. “It might help” becomes a much easier sales pitch when the customer does not have to consider the bill.

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The supplier gets paid for providing the brace. The payment does not automatically rise or fall with how much the patient values it or whether it ends up in a trash can a week later.

Nothing here requires assuming that every doctor is dishonest or that every brace is useless. A system can encourage too much spending even when individual decisions are defensible.

That is why, now, a back brace comes with regulations.

One response to this conflict is to regulate the relationship between the doctor and the supplier. The federal physician self-referral law, commonly called Stark, generally prohibits Medicare referrals for specified services to an entity with which the physician has a financial relationship. The underlying concern is understandable: if there is no insurance company to deny a claim, a physician cannot give himself an unchecked source of referrals for financial benefit.

The actual law is considerably more complicated than “doctors cannot own the business.” Determining which arrangements qualify is part of the work. A colleague once told me he asked five lawyers whether a proposed business venture complied with Stark. He got seven different opinions. Once rules are made, lawyers get to make money interpreting those rules.

Restricting self-referral for doctors completely misses the same behavior from hospitals. Large systems will restrict employed doctors from referring to outside imaging centers, labs, or physical therapy. If a doctor owns those ancillary services, it’s illegal. If a large hospital corporation owns them, it’s suddenly acceptable.

Doctors are targeted, and sometimes they aren’t even part of the problem.

An August white paper from the HHS Office of Inspector General describes three ingredients of Medicare equipment fraud: a supplier able to bill the program, a physician order, and a beneficiary identification number. A physician’s information can be used without the physician even knowing it.

Traditional Medicare already has minimal medical review and prior authorization for selected equipment. A prescription from a doctor does not guarantee payment for a brace. But it comes pretty close.

A cash transaction, on the other hand, puts the payment decision back on the patient. The patient can ask how much the brace costs, what benefit to expect, whether a less expensive version would work, or whether it is worth trying at all. Furthermore, if a doctor is selling useless braces, patients will eventually catch on and stop going to that doctor. Referrals will dry up.

This is the only way we can know the value of a brace.

A private insurer requires authorization and will claw back payments for unindicated services. It can negotiate payment and specify which devices it will cover under which circumstances. But when the insurance policy covers the brace, it only gets paid for when it makes sense for the insurance company. They have to approve enough braces so beneficiaries don’t get too angry. Or, if they see an ROI on approving braces because it decreases surgical spending, they may approve it. But they’re not paying for it out of charity.

I know colleagues whose practices accept only cash and private insurance. In those practices, a patient may get an MRI and a brace the same day, see prices in advance, and arrange a procedure within days or a week. That experience contrasts with the fragmented process familiar to many patients: an order, an uncertain price, several scheduling calls, and unpredictable bureaucracy-induced wait times.

Integration can create a financial conflict. It can also make care more convenient. A rule that tries to prevent the first can make the second more complicated.

Physicians understandably want more decisions to remain in the exam room. Patients understandably want coverage that lets them accept needed care without worrying about their bank balance. Both are understandable. Neither makes the cost of the recommendation disappear.

For routine, affordable equipment that patients can reasonably compare, transparent prices and more direct purchasing deserve a larger role. Expensive devices and patients who need financial help require coverage and support. Where a third party pays, we should judge its controls by the fraud they prevent, the work they impose, and the necessary care they delay.

Physicians cannot reasonably demand that someone else pay every bill while also demanding that the payer exercise no judgment over the bill. Payers cannot reasonably pretend that exercising that judgment costs nothing.

We can give patients more control over routine purchases or accept that whoever finances those purchases will want to check the bill. We cannot expect an unlimited stream of reimbursable braces with nobody responsible for asking whether they are worth buying.

Legislators and regulators are trying to regulate price transparency into existence. It’s a noble effort, and I support it, but it’s not the ultimate answer. Federal hospital price-transparency rules already require hospitals to publish pricing information. The next step is making that information useful when a patient is choosing care.

Price transparency should not depend solely on legislation if consumers demand it. We expect auto dealerships to tell us what a car costs before we buy it. No sane person would buy a car without finding out the price.

Healthcare should be the same when patients have time and a realistic choice of providers. Consumers should demand prices and stay away from institutions that do not provide them.

A JAMA Network Open study put that expectation to the test. Researchers called 1,150 urology clinics, posing as relatives of uninsured patients seeking a kidney-stone consultation. 401 of 464 private practices supplied a cash price: 86.4%. Hospital-based clinics did so 69.7% of the time (354/508); academic clinics, 61.8% (110/178)

They adjusted for a number of factors: metro versus rural location, state Medicaid expansion status, whether the clinic accepted Medicaid, and median household income in its ZIP code. Some seem a bit arbitrary. However, even with adjustment, private-practice clinics were much more likely to offer a cash price than academic centers or hospital-based practices.

Yet another win for independent physician practices trying to cater to patients’ needs.

Consider what that does for patient care. It’s not just about treating the disease. By offering a cash price, doctors are protecting a patient’s autonomy and financial well-being. Patients can use that price to shop, budget, and compare. They can inquire about non-price benefits, such as shorter wait times. It also gives practices a reason to keep prices lower: if the quoted price is outrageous and patients have alternatives, they can take their business elsewhere.

To their credit, hospital-based and academic clinics more often reported financial-assistance options. A meaningful discount can help patients. But lets not forget: tax-exempt hospitals are required to maintain a financial-assistance policy.

Ideally, a patient would get a consultation price; find out what falls outside it; get information on the assistance available. “We have a program” leaves several of the patient’s original questions unanswered unless the next steps are usable.

For independent physicians, this is a concrete opportunity to compete on service. Make the cash price easy to find. Precedent is out there, such as the famous Surgery Center of Oklahoma. It lists procedure prices on its website and identifies exclusions. Put that information where a patient can find it, and make sure the person answering the phone can explain it. This is a way forward to a more affordable healthcare system.

A price-transparency mandate can have legal teeth—CMS can impose financial penalties—but it needs consumer pressure too. Patients need prices they can act on, and practices should compete for their business.

He’s right about the extent of government involvement. Michael Cannon, who is about as far from Krugman ideologically as you can get, states, “When it comes to government control of health spending, the United States is closer to communist Cuba (89%) than the average OECD nation (75%).”

But Krugman then treats that fact as an argument for moving further toward single-payer healthcare. Strange for someone who is so often critical of the U.S. system to want to double down on the very parts that make it so dysfunctional.

The fact that our dysfunctional system is “mostly socialist” suggests more socialization would make things worse. Krugman points out that the employer-sponsored insurance tax exclusion acts as a subsidy. It does—to the tune of about $471 billion in 2026. It’s also part of the reason care is so expensive. The culprit: government. The same entity also created demand subsidies such as the ACA marketplace premium tax credits and, even worse, an open-ended defined-benefit, fee-for-service program whose benefit spending is mandatory rather than fixed through annual appropriations: Medicare. That same government then implemented supply restrictions, such as restrictions on new and expanding physician-owned hospitals.

Krugman places most of the blame for the system’s dysfunction on its private component. But he also acknowledges that the government both subsidizes and regulates much of that component. He objects to Medicare Advantage plans receiving so much money, but Medicare itself sets and makes those payments.

Krugman also leans into the tired trope that private insurance creates all the administrative burden for doctors. I’ve argued before that Medicare’s low administrative-cost figures are misleading. Krugman also glides past the lived reality of physicians whose lives are micromanaged by Medicare rules. CMS establishes detailed documentation and coding requirements, determines which services are billable, and sets prices for more than 10,000 physician services. Medicare determines how time and medical decision-making translate into payment and how procedures are valued relative to cognitive care. Those burdens do not originate with private insurance.

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The fact that we already have a largely socialized system also does not support Krugman’s claim that moving to single payer is a small step. The current House Medicare for All legislation would prohibit private insurance and employer plans from duplicating the federal program’s benefits, while allowing supplemental coverage for services the program does not cover. It would also eliminate all cost sharing and utilization management. Imagine taking SNAP benefits, making them unlimited, and giving them to every person in the country.

This is not a small step from a “mostly socialized” system into Medicare for All. That’s a fire hydrant’s worth of demand subsidies on top of an already constrained system.

A broad national defined-benefit plan with nationwide choice among qualified participating providers must have some form of cost control. Medicare for All legislation acknowledges this explicitly through a national health budget and even more micromanagement of doctors and hospitals. So legislators get to decide whether to constrain payments and supply, raise substantially more revenue, or blow an even bigger hole in the gross federal debt, already above $40 trillion.

Krugman, like many Medicare for All advocates, also ignores the variety of universal-coverage systems worldwide. Germany uses competing private insurance plans; Switzerland has no national public insurer for basic coverage, instead requiring residents to choose among private insurers. Singapore uses cash pay for most elective services paired with health savings accounts. Australia encourages private coverage so effectively that more than half of Aussies have it.

So Krugman may have stumbled onto the correct observation: U.S. healthcare is already largely government-financed and government-controlled. But that observation conflates cause and effect, like a doctor who ignores the underlying infection, thinking the fever is the only problem. Government sets the rules that structure our current healthcare system. We shouldn’t let it have even more control.

Yet, here she was, six months after I initially saw her, without a primary care doctor.

She has insurance coverage through Medicaid, the joint state-federal program that covers the poor. Her coverage guarantees she doesn’t need to pay for medical care.

If she can get it.

For Medicaid patients, payment is only part of the problem. Finding a physician who will give an appointment to a Medicaid patient is a larger problem. An INQUIRY meta-analysis combined 34 appointment-audit studies and found that, compared with privately insured patients, Medicaid patients had a 1.6-fold lower likelihood of successfully scheduling primary care and a 3.3-fold lower likelihood of scheduling specialty care. A New England Journal of Medicine audit of pediatric specialty clinics found that 66 percent of Medicaid–CHIP callers were denied an appointment, compared with 11 percent of privately insured callers. Even at clinics accepting both, publicly insured children waited an average of 42 days, compared with 20 days for privately insured children. Simulated-patient studies in California and Michigan have likewise found substantial primary-care barriers and longer dermatology waits for Medicaid patients, respectively.

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This is not surprising. A Health Affairs analysis documents that Medicaid physician fees lag Medicare fees, and a GAO comparison likewise found lower Medicaid payments than private insurance. On top of that, Medicaid patients are often more complex and sicker at baseline, have lower levels of education requiring lengthier patient education, and are more likely to miss appointments. The doctors can’t be blamed. They are simply following incentives. If someone is paid $100 to do A and $1,000 to do B, that person will tend to do much more B than A.

When Medicaid patients can’t get care through clinic appointments, they turn to the emergency room. This, again, is well documented. A study by Decker in INQUIRY found that Medicaid fee cuts were associated not only with fewer ambulatory visits but also with a shift away from physician offices and toward hospital outpatient departments and emergency departments.

Unsurprisingly, increasing the rate paid to doctors increases access for those patients. In 2013 and 2014, the federal government temporarily raised selected Medicaid primary-care payments to Medicare levels. In a New England Journal of Medicine study, Polsky and colleagues used researchers posing as patients to call practices in ten states before and after the increase. Appointment availability for Medicaid patients rose from 58.7 percent to 66.4 percent. Across states, each 10 percent increase in reimbursement was associated with a 1.25-percentage-point increase in appointment availability.

There is no ground truth about what the correct payment rate is. Rates are determined by markets, reflecting both supply and demand. This applies to clinic appointments just as it does to any other good or service. If Medicaid is going to set rates outside of the market, adequacy should be measured by whether patients can actually obtain care.

According to CMS, there is no single federal Medicaid fee schedule. States establish fee-for-service rates and design their managed-care payment systems, while managed-care plans negotiate many of their base provider rates. Federal law imposes requirements, and CMS approves state plans, contracts, and certain state-directed payments, but states make most of the consequential payment choices.

Medicaid payment is complex. It is shared between the state and the federal government, and that ratio changes based on the beneficiary. If a state wants to pay doctors more to see patients, it can do so, but it bears some of the cost. The federal government then provides an open-ended match at the state’s applicable federal medical assistance percentage, or FMAP.

The Congressional Research Service notes that general-fund appropriations are only one possible source of that nonfederal share. States also use local-government transfers, certified public expenditures, and health-care provider taxes. In state fiscal year 2024, general funds supplied about 68 percent of states’ share of Medicaid costs; other state and local sources supplied the remainder. By fiscal year 2025, every state except Alaska (which has all that sweet oil revenue) used at least one provider tax, which is one mechanism to gain more federal funding than would otherwise be available under traditional federal matching.

Under 42 C.F.R. § 433.68’s indirect-guarantee test, taxes producing no more than 6 percent of the class’s net patient revenue pass the first prong; taxes above that level face the “75/75” test: CMS treats the arrangement as an impermissible indirect guarantee if at least 75 percent of the taxpayers in the class receive at least 75 percent of their total tax costs back through enhanced Medicaid or other state payments. If the 75/75 threshold is crossed, the entire amount of tax revenue is offset against the state’s Medicaid expenditures when federal matching funds are calculated. A Congressional Research Service summary of P.L. 119-21 explains that Congress has now frozen or constrained many taxes and will phase the threshold for most provider classes in Medicaid-expansion states down to 3.5 percent by fiscal year 2032.

From the state’s perspective, the logic is compelling. Provider taxes can preserve benefits or raise rates without competing for as many unrestricted dollars from schools, roads, or other state priorities.

The federal taxpayer’s objection is equally compelling. A 60 percent matching rate ordinarily requires the state to decide that a dollar of Medicaid spending is worth 40 cents of its own fiscal resources. If the 40 cents instead comes from providers who expect to share in a much larger payment, the state may have little unrestricted money at risk. Its incentive to act as a prudent purchaser weakens while federal taxpayers still supply 60 cents on the dollar.

Regardless of the mechanism, more Medicaid funding potentially means more payments for doctors so that patients can find clinicians.

Florida’s academic-medical-center physician program illustrates the attraction. An earlier approval package calculated increases intended to bring participating faculty practices to the average commercial rate, then estimated at 194.5 percent of Medicare. In the February–September 2025 amendment, base payment levels for participating academic practices ranged from 16 to 75 percent of the program’s benchmark; the directed payments brought each to 100 percent. CMS approved as much as $260.9 million for that partial-year amendment.

But Florida also demonstrates why terminology matters. A state-directed payment is the way money is paid through managed care; it is not itself the financing source. Florida’s current filing identifies intergovernmental transfers—not a provider tax—as the nonfederal financing mechanism. The recipients are academic faculty practice plans and affiliated groups, not necessarily independent doctors.

Texas’s Incentive for Physicians and Professional Services program, or TIPPS, is a closer provider-tax comparison. CMS approved up to $645.4 million for September 2025 through August 2026. Depending on the Medicaid managed-care program, the directed payments raise reported total payment for academic physician groups from base levels of roughly 24–37 percent to approximately 55–85 percent of the commercial benchmark. “Other” physician groups remain lower, at roughly 37–52 percent.

That may be an intelligent redistribution from hospitals toward physician access. But it raises questions the approval package does not fully answer. How much remains with large academic groups? How much becomes physician compensation or additional clinic capacity? Are independent practices disadvantaged? Do patients obtain appointments sooner? Texas ties part of the program to quality measures and identifies increased primary and preventive care as a goal.

States do not always use the fiscal room created by provider taxes to raise ordinary clinic payments. Money is fungible, and, put in the hands of politicians, it can fund numerous pet projects.

As a CMS State Medicaid Director letter explains, some states use state-only dollars to fund full-scope coverage for individuals otherwise ineligible because of undocumented immigration status. Likewise, CMS has approved Medicaid coverage of “traditional healthcare practices” such as ritual dancing or drumming. CMS guidance also describes Medicaid coverage of nonemergency transportation to medical care, while separate CMS guidance discusses housing-related assistance and nutrition. It’s not unreasonable to think that some of these funds are distributed to politically connected NGOs.

Yet, despite these abuses, some states undeniably improve access for Medicaid patients with these funds.

That is why an August 2026 ASPE report is so important. It gives an economic argument to limit these directed payments. Its model predicts that the limits will reduce non-Medicaid prices by as much as 3.5 percent in markets with provider taxes and produce $502 billion to $875 billion in benefits for non-Medicaid consumers from 2025 through 2034.

First, a provider tax raises a provider’s marginal cost and may be passed through into commercial prices. Second, large supplemental Medicaid payments can make Medicaid business more attractive. When provider capacity cannot expand quickly, clinicians and facilities may shift capacity from commercially insured patients toward Medicaid patients, increasing non-Medicaid prices. Linking Medicaid payment to the average commercial rate can amplify the feedback: higher commercial prices permit higher Medicaid payments, which then support more federal matching funds.

This model has a normative implication that should be stated plainly. The capacity-crowding mechanism is not unique to provider taxes or state-directed payments. If a state used ordinary tax revenue to increase Medicaid payment, the higher Medicaid price could still attract finite provider capacity away from non-Medicaid patients. Taken to its logical conclusion, this becomes an argument against paying Medicaid providers more regardless of the financing mechanism.

The ASPE report counts lower non-Medicaid prices as a benefit. Yet, if Medicaid patients can’t find appointments and end up crowding ERs, nobody wins.

The federal government should reward arrangements that demonstrably improve access.

There is no perfect answer. Provider-tax restrictions can reduce federal arbitrage but also cause states to cut already inadequate payments. Average-commercial-rate benchmarks can improve access but can also import commercial market power into Medicaid. Medicare benchmarks are more transparent but may be inadequate in some markets. Access measures can themselves be gamed.

As Thomas Sowell wrote in “Housing Hurdles,” “There are no solutions. There are only trade-offs.”

My patient does not care whether her eventual primary-care appointment is financed by general revenue, an intergovernmental transfer, or a lawful provider tax. She cares whether an actual clinic will see her before another fracture occurs.

That’s all that matters in the end.

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Those of us who work in hospitals see institutions fail to protect patients for a multitude of reasons, including understaffing, inadequate equipment, and disconnected administration. Those problems, however, are not unique to physician-owned hospitals.

Yet physician-owned hospitals were effectively barred from new development under Medicare because opponents argued that physician ownership creates a unique set of financial incentives. Furthermore, they argued that these incentives cannot be replicated through other forms of ownership, including large vertically and horizontally integrated systems that may even offer their own insurance products.

The strongest evidence offered against physician-owned hospitals actually illustrates an important distinction. The Office of Inspector General’s 2008 evaluation reviewed data from 109 physician-owned specialty hospitals. It found that only 28 percent had a physician on site at all times and 66 percent reported utilizing 911 as part of their emergency response plans. However, the OIG also evaluated physician availability, registered-nurse coverage, and emergency stabilization and transfer capabilities. While 7 percent of the sampled days failed to meet these criteria, 93 percent met them.

As noted above, the OIG did not suggest physician ownership as a basis for exclusion from participation in Medicare. Instead, it recommended enforcement of the Conditions of Participation that already existed: ensuring physician availability, requiring a registered nurse to be present at all times, assuring that hospitals maintain sufficient capability to evaluate and initially treat emergencies, verifying policies for stabilization and transfer, and providing additional guidance for enforcing these conditions.

It is unrealistic to assume that every hospital will have the capability to treat every disease. For example, many community hospitals do not possess adequate neurosurgical capability to treat patients with intracranial hemorrhage and therefore must transfer them. That is why transfer arrangements exist. This is extremely common in non-physician-owned hospitals today.

A specialty surgical hospital should be held accountable to the same standard as any other hospital. If a hospital advertises itself as a full-service hospital, then it must meet the requirements of a full-service hospital. Many hospitals are not capable of treating every disease and should advertise themselves accordingly.

There is no doubt that physician ownership creates a financial incentive. Physicians may refer patients to a facility in which they have invested. A specialty hospital may favor patients who are well insured, healthy, and undergoing profitable procedures. Conversely, full-service hospitals bear costs for emergency preparedness, uncompensated care, and low-margin services that a limited-scope hospital does not bear. These are valid concerns.

Yet none is unique to physician-owned hospitals. Every vertically integrated hospital system operating in the country faces financial incentives.

The question, therefore, is what harms, if any, are sufficiently unique to physician ownership to warrant restricting this particular form of vertical integration while continuing to permit the others.

Large hospital systems decide which service lines to develop or eliminate, which sites to invest in, and which patients they are able to serve. Additionally, safety-net hospitals are disproportionately burdened by caring for large numbers of uninsured patients, complex patients, and patients who are otherwise unprofitable. We may not like admitting it, but certain groups of patients consistently produce negative margins, create substantial operational challenges, and can even generate significant security burdens.

Regardless of ownership type, hospitals still shut down service lines deemed unprofitable. A U.S. Senate inquiry into Bon Secours cited reports that the system closed the ICU at Richmond Community Hospital in 2017 and failed to replace several retiring specialists even as the hospital continued to generate substantial profits. The point is not simply that Bon Secours behaved egregiously. It is that, regardless of ownership structure, every hospital owner faces choices about which services are worth investing in based partly on profitability.

Safety-net providers receive subsidies for providing high-cost safety-net and standby care, and both physician-owned and non-physician-owned hospitals providing such services should be eligible. Medicare Disproportionate Share Hospital and uncompensated-care payments, Medicaid DSH payments, Medicaid state-directed payments, and other supplemental funding streams help offset some of the costs associated with providing safety-net care. If more assistance is required, that should be considered separately from prohibiting physician-owned hospitals.

Given the available empirical research, it becomes increasingly difficult to defend a blanket ownership prohibition. A national comparison published in 2015 found that physician-owned and non-physician-owned hospitals had broadly similar patient-experience scores, process measures, risk-adjusted mortality, readmissions, costs, and payments for several common medical conditions. A 2020 Medicare surgical study found that patients treated at physician-owned hospitals were healthier at baseline, but after adjustment, non-physician-owned hospitals had higher odds of postoperative complications and slightly higher expenditures. Finally, a 2021 systematic review from the Mercatus Center concluded that focused-factory POHs generally provided higher-quality care at comparable or lower cost, while general acute-care POHs performed no worse than community-hospital comparators.

The restrictions on physician hospital ownership are frequently framed as though society is choosing between a neutral, community-oriented hospital marketplace and one dominated by physician-owned facilities. What is ignored is that large hospital systems have spent decades acquiring physician practices and redirecting care toward higher-priced hospital-based services. Richards and colleagues studied changes in ambulatory procedures following hospital acquisition of physician practices and found that physicians shifted roughly 10 percent of outpatient procedures away from ambulatory surgery centers and toward hospital settings after acquisition. Similarly, another study found comparable shifts toward hospital-based imaging and laboratory services following vertical integration.

These are large hospital systems exhibiting the same basic referral-capture incentives that opponents attribute to physician-owned hospitals.

The incentive is familiar: control referrals, move services to the setting the owner prefers, and generate the facility revenue associated with those services. When physicians own the destination, we scrutinize that financial alignment as self-referral. When the hospital owns the physician making the referral, the same financial alignment is often defended as care coordination.

Nor is pricing incidental. A 2023 JAMA Network Open analysis comparing physician-owned and non-physician-owned hospitals within the same hospital referral regions found that physician-owned hospitals were associated with substantially lower commercially negotiated and cash prices for common services.

At the same time, there is growing evidence that consolidation increases prices. A 2025 GAO report concluded that hospital-physician consolidation can increase prices and spending without reliably improving quality, and in some cases may worsen it. Brot-Goldberg and colleagues took this a step further, finding that merger-driven health-care price increases were associated with lower payroll and employment at non-health-care businesses, lower county labor income, and greater flows into unemployment.

Consolidation-driven price increases therefore impose costs well beyond the hospital walls, placing additional pressure on employers and workers who ultimately bear increasingly expensive health-care costs.

Rural hospitals merit special consideration because many continue to provide essential standby capacity despite operating on thin volumes and weak payer mixes. The introduction of a new specialty facility could divert profitable procedures and disrupt this cross-subsidy. This is a legitimate concern.

However, the evidence surrounding this issue should be described accurately. The hospital trade association rural model cited by opponents simulates the introduction of a hypothetical physician-owned hospital into the market of an average sole community hospital using assumed levels of patient diversion. Its findings therefore depend heavily on assumptions about how much profitable volume would leave the incumbent hospital. The model provides an illustration of a potential risk, but it does not establish what would actually occur in every rural market.

If society wants rural emergency preparedness, obstetric services, trauma readiness, or other socially valuable standby services, it should fund that capacity directly through federal grants, state-directed payments, or local funding mechanisms, just as public funds support police and fire services. Relying on artificially inflated commercial prices and protected profitable service lines to cross-subsidize essential services is opaque, geographically uneven, and vulnerable to further consolidation.

Finally, physician-owned hospitals give local physicians an opportunity to invest in their communities and participate in creating value by building high-quality capacity. That does not prove physician ownership improves physician retention, but it is a plausible countervailing incentive that the rural model does not account for. A physician who has invested capital and helped build a physical plant may feel more tied to the community than an employed physician who feels like an interchangeable widget in a corporate hierarchy.

If the concerns are genuine, enforce minimum emergency standards. Police self-referral directly, and where payers already use robust utilization management, create targeted exceptions rather than imposing a blanket ownership restriction. Grants, directed payments, and other public financing can preserve essential standby capacity in rural markets.

Both physician-owned hospitals and hospitals operated by non-physician owners can selectively attract profitable patients, overprovide services, and fail to prepare adequately for emergencies. Hospitals can do this whether their owners are nonprofit systems, for-profit chains, governments, physicians, or academic centers. Ownership may reveal an identifiable conflict worthy of scrutiny, but it does not independently establish that blanket restrictions on entry and expansion produce more benefit than harm.

The policy we need is not leniency toward physician owners. It is symmetry: the same safety standards for comparable services, the same transparency for comparable conflicts, and the same accountability for comparable behavior. Patients should be protected from unsafe hospitals. They should not be protected from having another hospital to choose.

What happened

The CY 2027 Physician Fee Schedule proposal would sunset traditional MIPS (that quality metric scoring system that doesn’t actually track quality) after the 2028 performance year and require physicians to transition to MIPS Value Pathways, or MVPs, beginning in 2029.

Although mips appears to be ending when you consider the transition to MVPs, the basic framework for mips will continue. In addition to continuing the quality, cost, improvement activities, and promoting interoperability categories, physicians will be required to meet a 75-point performance threshold and obtain a 75% level of completeness in their data submissions. While mvp participants will submit four quality measures, down from the six measures submitted in traditional mips, one of the four must always include a core measure unless an exception is applicable. Additionally, CMS is proposing the inclusion of electronic prior authorization REQUIREMENTS and evaluating a future transition to use fhir-based quality reporting methods.

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Perhaps most tellingly, CMS is still soliciting feedback on how MVP scoring should ultimately work, including whether scores should be normalized within MVPs and whether larger bonuses for high performers should mean more physicians receiving penalties.

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The reason almost doesn’t matter. Maybe there is concern for a brain tumor. Maybe a herniated disc is making you drag your foot. Maybe the diagnosis is still uncertain, and the MRI is supposed to help find it. The physician has decided that the scan is necessary.

That should be the hard part. It often isn’t.

At many hospitals, ordering an MRI is not one action but a chain of them. Select an indication from a dropdown menu. Type the indication again in a free-text box. Complete a metal-safety form. Enter a phone or pager number for urgent results. Attach a diagnosis code, even when the diagnosis is already in the note and elsewhere in the order.

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In many systems, the order also opens a decision tree asking why the patient needs an MRI rather than a CT scan, an x-ray, or some other test. CMS paused its Medicare Appropriate Use Criteria program in 2024, but local utilization controls and old EHR configurations do not necessarily vanish when a federal rule does. A requirement can outlive the policy that helped create it.

Physicians learn the workarounds. Save the phone number in a favorite order. Copy the indication from the note. Pick the diagnosis code that makes the screen go away. None of these adaptations is dramatic enough to inspire a revolt. Each saves a few seconds. Together, they become the unofficial operating system of medical care.

The same thing happens elsewhere. A hospital decides that recurring daily laboratory orders encourage unnecessary testing, so it disables them. Physicians then create new routines to make sure necessary labs are ordered each morning. A critical result may generate a call from the laboratory, a second call from the nurse, and an electronic alert from the mobile EHR. Each notification has a defensible purpose. The cumulative system is absurd.

Political scientist Steven Teles gave this style of government a name in his 2013 essay “Kludgeocracy in America” (credit to Michael Zirwas, MD, who brought the term to my attention on X). A kludge is an improvised fix: something added because redesigning the underlying system is too difficult. A kludgeocracy is what happens when those fixes accumulate into the system itself. American policy becomes a stack of tax preferences, reporting systems, and indirect subsidies that no one would design from scratch.

That describes American health care perfectly

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The rules did not appear from nowhere. Physicians sometimes order unnecessary tests. Imaging can expose patients to incidental findings and downstream procedures. Repeated laboratory testing can waste money and blood. Safety checks prevent real mistakes. Insurers, hospitals, and government programs have legitimate reasons to care about utilization, cost, and quality.

The problem is not that every rule is foolish. The problem is that almost every rule transfers its operating cost to someone else, usually the clinician and the patient.

Third-party payment makes this worse. When patients are insulated from the price of an MRI or a laboratory test, payers respond with utilization controls. But utilization control is not free. We hide the financial price from the clinical encounter, then reintroduce it as an administrative price.

A 2019 JAMA review estimated that administrative complexity accounted for $265.6 billion in annual waste. That figure is an estimate, and not every administrative task is wasteful, but the scale is difficult to dismiss. In the AMA’s latest prior-authorization survey, physicians and their staff reported handling about 40 requests per physician each week and spending roughly 13 hours on them. A time-and-motion study found that ambulatory physicians spent almost two hours on EHR and desk work for every hour of direct clinical face time, plus another one to two hours at night.

The burden does more than irritate doctors. It changes the structure of medicine.

In 2024, 42.2% of physicians worked in private practice, down from 60.1% in 2012. The AMA survey behind those figures identified inadequate payment, costly resources, and regulatory and administrative burdens as important reasons practices are sold. That does not prove that every dropdown menu causes a physician to sell to a hospital. It does show the direction of the pressure. A fixed compliance cost is easier for a large system to absorb than for a small independent practice.

The large system then builds an administrative and IT infrastructure to manage the rules. That infrastructure needs its own workflows, meetings, and safeguards. New people are hired to manage the old people who were hired to manage the original rule. The attempt to control costs creates a new category of costs.

This is the vicious cycle of health-care kludgeocracy: complexity creates work; work creates consolidation; consolidation creates distance between decisions and consequences; distance creates demands for more oversight; and oversight creates more complexity.

Cash-pay practices and direct primary care offer a partial escape. When the patient, physician, and price are close together, much of the billing machinery and prior-authorization apparatus can disappear. A cash transaction does not need permission from an insurer.

Before adding a new rule, the payer or hospital should answer three questions: Who will do the work? How much time will it take? What old requirement will be removed in exchange? Rules should automatically sunset unless their owners can show that they improve outcomes or reduce total cost. Whenever possible, the organization demanding the information should absorb the burden of collecting it rather than pushing another click onto the clinician.

No single reform will fix a system built from a thousand patches. But we can stop pretending that each patch is free.

American health care does not need another workaround. It needs, in medical terms, a kludgeectomy.

Yet most Americans would not like the result.

If Congress passes a law providing universal coverage, there will need to be some way to manage utilization and prevent the new system from exploding the budget. That means care must be rationed in some way. It might mean cutting payments to doctors, hospitals, and pharmaceutical companies. It might mean deciding that some specialties should be paid more than others. These are all forms of rationing. If you reduce specialist pay, you will eventually get longer waits for specialists. If you reduce primary care pay further, you will get even longer waits for primary care.

To see why, consider a hypothetical. Imagine Congress decides that food is an essential public good and that everyone should have food insurance.

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Every American receives a food card. There are no premiums, deductibles, or copayments. You go to the grocery store, choose the food you want, and the federal government pays the bill. No one is denied food because they cannot afford it. Employers no longer need to offer food benefits. The system is universal, equitable, and administratively simple.

The federal government would understandably want to standardize how much it pays grocery stores. So it would create a national food reimbursement schedule. Apples would be reimbursed at one price, eggs at another, beef at another, and rice at another. Perhaps the government would adjust those rates for geography, season, transportation costs, and store size. It might create special bonuses for rural grocery stores or extra payments for fruits and vegetables.

If everything in the grocery store is free at the point of purchase, many people will select the Wagyu beef and organic free-range eggs. You would quickly see shortages of some items and surpluses of others. People who knew when shipments of the most desirable foods arrived, or who knew how to work the system, would get the best selection. Others, perhaps those with full-time jobs or busy home lives, would be left with whatever remained.

Price signals would be largely eliminated. But the system would also eliminate a great deal of administrative activity. Grocery chains would spend less time negotiating with suppliers. There would be less price competition among stores. Advertising might decline because consumers would no longer care as much about prices. Price transparency would disappear almost completely.

Stores might no longer need customer loyalty programs. Coupons would disappear. If the government adopted global budgets, it could make the system simpler still. Each grocery store would receive a fixed annual amount to feed its local population.

The administrative savings would be immense. But so would the food shortages.

A national board would have to determine the correct reimbursement for every product in every community. If it paid too much for beef, stores would stock too much beef and suppliers would redirect resources toward cattle production. Then bacon might become difficult to find. If it paid too little for eggs, eggs would disappear from shelves. If the national payment for avocados worked in California but did not cover transportation and spoilage in Alaska, stores in Alaska would stop carrying avocados.

People would be upset. Sure, the avocados are theoretically free, but what good is that if you cannot find one?

In response, the government would create a geographic adjustment, followed by a seasonal adjustment, followed by a rural access adjustment, followed by a quality bonus. Before long, the simple national food system would begin accumulating the same complexity it was designed to eliminate.

There is no single correct price for an egg. The price depends on hundreds of inputs, including feed, labor, and local demand. Those conditions change constantly. No committee in Washington can collect and process all of that information in real time. Markets do it imperfectly through millions of transactions.

We have seen how quickly the price of eggs can change over the past few years. When eggs become more expensive, consumers buy fewer of them, switch to other foods, or sacrifice spending elsewhere. Producers receive the signal to increase supply. None of this happens perfectly or instantaneously, but prices convey information that no central planner possesses.

Healthcare is much more complex than food. Its supply chains are more complicated, its services are more prone to asymmetric information, and its prices are far less transparent. Yet we imagine that a central administration can efficiently distribute healthcare resources when the same idea applied to food would seem laughably unrealistic.

The cost of treating pneumonia depends on the patient’s age, medical history, severity of illness, and dozens of other factors. A neurosurgical operation cannot be standardized like a box of cereal. Even two patients with the same diagnosis code may require completely different levels of judgment, time, technology, and postoperative care.

For physicians, Medicare assigns relative values to thousands of services and converts those values into dollar payments. For hospitals, it sorts admissions into diagnosis-related groups and pays a predetermined amount. For outpatient care, it uses another payment system. For drugs, devices, rehabilitation, home health, and nursing facilities, it uses still more administered prices.

When Medicare pays too much for a service, capital and physicians flow toward it. When Medicare pays too little, access contracts. The system then tries to repair the resulting distortions through a myriad of technocratic tweaks, for example, quality metrics. These corrections create more opportunities for lobbying, further distortions in the market, and additional administrative complexity.

We already complain that the United States has too few primary care physicians and too many highly paid procedural specialists. If pediatricians were paid like orthopedic surgeons, we would probably have more pediatricians. We might also have fewer orthopedic surgeons and longer waits for knee replacements.

The underlying problem is that no central authority knows the correct number of pediatricians, orthopedic surgeons, or operating rooms that each community needs. Even if it did, pediatricians, orthopedic surgeons, hospitals, device manufacturers, and every other organized interest would be trying to influence the bureaucrats making those decisions.

So how do other countries reduce their administrative costs? Famously, the United States covers fewer people at a much higher cost. Other countries constrain their budgets and use administratively simpler systems. They sacrifice responsiveness and efficient resource allocation in exchange for administrative simplicity.

Take the NHS. The government establishes a budget and allocates resources through the health service. Market price signals play a much smaller role in prompting the expansion of service lines and increases in capacity. If the budget does not support more infrastructure, those things do not get built.

The NHS currently has more than six million patients waiting for treatment, with more than 100,000 waiting over a year. The rationing mechanism is administratively simple: establish a budget and allow the queue to absorb the difference between demand and available capacity.

The result is patients opting back into the private market. About 12 percent of Britons now have private medical insurance, despite already paying taxes to support the NHS.

Canada provides a similar lesson. Provincial governments finance medically necessary hospital and physician services through public insurance, using hospital budgets and administered physician fees rather than relying primarily on prices to coordinate supply and demand. The result is relatively simple billing for the patient.

Yet when prices are prevented from directing additional capital and labor toward areas of shortage, waiting times grow. The median wait times in Canada are over a year for a neurosurgery consultation, 6 months for an MRI, and over a month for an ultrasound.

Canadians are also severely restricted in their ability to purchase private insurance for services covered by the public system. As a result, some travel abroad to obtain care. Approximately 50,000 Canadians leave the country for medical treatment in a typical year, often paying substantial out-of-pocket costs to do so.

In many countries with universal public systems, there is also substantial uptake of private health coverage. From the Nordic countries to Australia, these administratively “simple” systems often rely on private care to provide additional capacity, faster access, or greater choice. Nearly half of Australians have private hospital insurance, while more than half have some form of private general-treatment coverage.

The private sector keeps reappearing because administrative simplicity comes with less responsive resource allocation, just as it would under our universal food coverage example. No central planner can know the changing demand for hip replacements in North Dakota, how much it costs to keep a primary care clinic operating in Charleston.

This is the mistake in treating lower administrative spending as an unqualified measure of efficiency.

A global budget is easy to understand. The government gives a hospital a fixed amount of money and tells it to care for the population. There are fewer claims to adjudicate and fewer contracts to negotiate. But once the hospital reaches the limits of that budget, the remaining decisions do not go away. Someone must decide whether to add operating-room hours, or make the patients wait.

Those are allocation decisions. They carry real costs, even when those costs never appear on an administrative ledger.

This is why the National Food Insurance analogy matters. Congress could make paying for food administratively simple by creating one budget and one national price schedule. But once everyone could order whatever they wanted without seeing the price, demand would rise. The government would then have to decide how much beef, fruit, bread, and milk the country should produce and what each should cost.

If prices were not allowed to adjust, the adjustment would happen somewhere else. A waiting list would form. People with money would shop at a private store or drive across the border.

Healthcare is no different in that respect.

So yes, we could save a great deal of money by eliminating administrative waste. We could create one payment system, one national fee schedule, and one global budget. The paperwork might become much simpler.

But simplicity is not free. The cost would appear elsewhere: shortages, queues, and political lobbying, plus the additional cost of high taxes plus the out of pocket cost for those who exit the system.

Most Americans would not like that tradeoff.

The argument usually arrives as a conversation-ender, often with a snide, “Well, Medicare only spends 6% on administration, therefore it must be more efficient.”

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Of course, anyone who has watched the government do much of anything knows that efficiency is not exactly its strong suit. Even the things the government is supposedly good at, like war, tax collection, and national parks, tend to be run with layers of process and waste. How much have we burned through on failed fighter jet plans?

Then comes the second move: private insurance wastes money on marketing, administration, and, of course, that evil term: profits.

That sounds persuasive until you ask the most basic economic question: for whom is Medicare actually efficient?

Medicare does not have magically low administrative costs. It has narrowly measured administrative costs, unusually expensive beneficiaries, and a large hidden bureaucracy that is offloaded to entities outside of CMS. The official number may be low on the Medicare ledger, but that does not mean the administrative burden has disappeared.

Ask any physician who has dropped Medicare. They will often tell you their administrative costs dropped dramatically. No more conditions of participation, quality metric reporting, Medicare audits, Stark law headaches… the list goes on.

This is the part physicians understand instinctively because we live inside the machinery. Medicare is not a frictionless payment system. It is a world of CPT and ICD-10 codes. CMS did not single-handedly create every bad EHR, but federal policy helped make inefficient EHRs unavoidable, and the result is that clinicians now spend staggering amounts of time feeding the record rather than caring for patients.

The official Medicare numbers are not fake. They are simply incomplete for the political work they are being asked to do. The 2026 Medicare Trustees Report estimated that Medicare covered 69.3 million people in 2025 and spent about $1.21 trillion. The same report lists relatively small explicit administrative expense lines, including about $5.9 billion in Part B administrative expenses, equal to 1.0 percent of Part B expenditures, and about $0.5 billion in federal administrative expenses for Part D.

The first trick is the denominator. Medicare beneficiaries are older and sicker than the average privately insured person, so Medicare spends far more in medical claims per enrollee. When administrative costs are presented as a percentage of total spending, a program that pays very large medical bills will naturally look administratively leaner.

CMS national health expenditure data show that, in 2020, per-person personal healthcare spending for adults age 65 and older was $22,356, more than five times spending for children and nearly two and a half times spending for working-age adults. Older adults were about 17 percent of the population but accounted for roughly 37 percent of personal healthcare spending.

Imagine two insurers spend the same amount administering a patient. One patient generates $5,000 in annual claims. The other generates $25,000. The same administrative cost will look five times smaller as a percentage of claims in the second case. Nothing about that proves the second insurer is more efficient. It proves the patient is more expensive.

The second trick is the accounting boundary. Medicare’s official administrative cost includes payments to Medicare Administrative Contractors, the private contractors that process claims and perform much of the operational work of traditional Medicare. But they offload a lot more.

Medicare offloads collection of premiums to other branches of the government. Where a private insurance company has to spend money on premium collection, Medicare relies on the IRS to collect the taxes to pay for its services. No cost to CMS there.

Medicare also offloads the work of describing and valuing the billing units for physicians. Much of this happens through the CPT and RUC machinery, maintained outside CMS by the AMA and specialty societies. There are millions of dollars worth of time from physicians and staff for which Medicare never pays. Then, of course, physicians pay for coding courses. Practices pay coders, who also attend those coding courses. Staff spend hours learning how to navigate CPT codes and documentation rules. None of that shows up as CMS administrative overhead. Meanwhile, private insurance companies are responsible for negotiating their own distinct contracts with numerous provider groups.

Then, of course, there are the quality metrics.

One study in JAMA Health Forum estimated that physician practices spent an average of $12,811 per physician and more than 200 hours per physician to participate in MIPS in 2019. The authors estimated that physicians themselves accounted for more than half of the financial cost, because physician time was absorbed by compliance rather than patient care. Another study in Health Affairs estimated that U.S. physician practices spent an average of 785 hours per physician per year on quality-measure reporting, at a total annual cost of more than $15.4 billion. A study of hospital quality reporting in JAMA estimated that reporting 162 quality metrics required more than 108,000 staff-hours and about $5 million in annual personnel costs at one major academic medical center.

These are not abstractions. These are hours and dollars that could have been spent on actual patient care. And this is exactly the sort of cost that disappears when we pretend Medicare’s administrative cost is whatever CMS spends directly to run the program.

The third trick is cost-shifting. Government programs are very good at making costs vanish from one ledger by imposing them on another. A regulation can look cheap to the agency that issued it if the work of compliance is performed by someone else.

This is one of the underappreciated ways bureaucracy drives consolidation. Large hospital systems can absorb the administrative burden. Small independent practices cannot. When policy makes fixed administrative costs unavoidable, it favors scale. Then policymakers express surprise when physicians sell their practices to hospitals, prices rise, and patients lose access to independent doctors.

The data point in that story is no longer subtle. GAO reported that at least 47 percent of physicians were consolidated with hospital systems in 2024, up from less than 30 percent in 2012. GAO also noted that physician-hospital consolidation can increase Medicare spending when services move into more expensive hospital-based settings.

None of this means private insurance is innocent. Private insurance has its own enormous administrative machinery. Some of it is duplicative. Much of it is maddening. Every physician in America has lost hours of life to insurer portals and peer-to-peer calls that seem designed less to improve care than to exhaust the person trying to provide it.

But we should be careful with the word “waste.” In ordinary markets, advertising, profit, sales, customer service, contracting, and risk management are not automatically waste. We do not say the iPhone is inefficient because Apple advertises and earns a profit. Those activities may be costly, but in a functioning market they are part of how firms compete. If Apple could sell as many iPhones with half of its advertising budget, it would cut that cost in an instant. The problem in healthcare is not that private insurers have administrative costs. The problem is that our third-party payment system hides prices, insulates patients from tradeoffs, and forces clinicians to negotiate with payers rather than directly with the people receiving care.

Private insurance deserves plenty of criticism. Yet private insurance, if the market is working as it should, disciplines itself. Whichever insurer can keep administrative costs the lowest should outcompete the others by providing quality coverage at lower prices. There are plenty of reasons the market is distorted and not working as efficiently as it should, but the underlying principle is the same. There is no comparable discipline on Medicare. There is no true competition with other forms of insurance keeping the system honest.

Medicare does not become efficient merely because it avoids some private-sector costs while imposing a different set of public-sector costs. Just because Medicare lacks a marketing department does not automatically mean it is efficient.

There is also a deeper point that rarely appears in these debates: low administrative spending is not automatically good. A trillion-dollar public program needs oversight. If it does not spend enough on administration up front, it will spend more later through improper payments, blunt audits, or after-the-fact enforcement. CMS reported FY2025 improper payment estimates of $28.83 billion for Medicare fee-for-service, $23.67 billion for Medicare Advantage, and $4.23 billion for Part D. Maybe a little more administration would be a good thing here.

This is the central error in the Medicare expansion argument. It takes a narrow accounting ratio and treats it as a complete economic fact.

The physician’s unpaid evening documentation, the quality department at the hospital, and the compliance officers are all costs. The patient waiting six months because independent practices in the area stopped taking new Medicare patients is a cost.

Healthcare policy should begin with acknowledging scarcity, tradeoffs, and incentives. That means asking not only how much Medicare spends on its own administration, but how much administrative work Medicare causes other people to perform.

The point is not that Medicare is all bad. Medicare pays for a tremendous amount of necessary care. Every hospital in America depends on it. Millions of elderly and disabled patients would be in deep trouble without it. The point is that we should stop using a narrow overhead statistic as if it settles the question of efficiency.

It does not.

Administrative costs do not disappear simply because the government does not count them.

There are two big items in this rule that could help bring independent doctors and freestanding outpatient facilities closer to parity with large hospital systems.

First, CMS is proposing to pay hospitals significantly less for medications acquired under the 340B drug discount program. Second, CMS is proposing to stop paying certain hospital-owned outpatient departments more for routine imaging that could safely be done in a physician office or freestanding imaging center.

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The 340B program is no longer the drug discount program envisioned in 1992 when it was enacted. It has grown into an $80+ billion-a-year subsidy stream for large hospital corporations. HRSA reports that covered entities purchased $81.4 billion in covered outpatient drugs through the program in 2024. The program encourages behavior that can increase federal spending and insurance premiums. It incentivizes hospitals to prescribe higher-priced drugs and consolidate by purchasing independent clinics. It increases prices by forcing insurance plans to forgo rebates. CBO has warned that the program can increase federal spending through these mechanisms, while GAO has documented persistent oversight weaknesses.

A major issue with the program is the lack of oversight. GAO said HRSA’s audits do not fully assess duplicate-discount compliance and that HRSA’s oversight does not ensure that only eligible hospitals participate.

So Cassidy’s bill is best understood as an attempt to make 340B behave more like a patient-centered safety-net program without actually converting it into one.

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CMS is voluntarily recalculating 2027 Medicare Advantage Quality Bonus Payment ratings for certain contracts after Clover Health successfully challenged CMS’s 2026 Star Ratings methodology. The recalculation will only raise ratings, not lower them; Clover’s PPO contract reportedly moved from 3.5 to 4.5 stars after a federal court found problems with the agency’s use of certain measures. (healthcarefinancenews.com)

The stakes are not just like changing your Yelp review. Medicare Advantage Star Ratings help beneficiaries compare plans, but they also determine Quality Bonus Payments and affect rebates, meaning the “quality” score is also a federal payment formula. (cms.gov)

Market-Based Analysis

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Early in the COVID pandemic, he asked me about the rules. He was not trying to make a political point. He was trying to make sense of what he was being told.

Why did he need to wear a mask while waiting for a table at a restaurant, but not while eating? Why did his two year old need to wear a mask at daycare, but take it off to nap? Why were playgrounds locked up? Why could people exercise on the beach, but not sit there with their family?

And perhaps most damaging of all, why was protest described by many as a public health imperative, while keeping a business open was treated as reckless?

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That is when a lot of ordinary people started losing trust. Not because they suddenly became anti science. Not because they were too stupid to understand public health. Because they could see the inconsistency, the hypocrisy, and the moving goalposts.

The California Medical Association recently published an op ed by Dr Alex McDonald warning about the politicization of medicine. In many ways, I agree with him. Physicians should be concerned when patients make medical decisions based on “identity and partisanship” rather than evidence. Political leaders should not use medicine as a tribal weapon. Patients should not distrust effective treatments simply because the wrong person endorsed them.

But that is exactly the problem with the piece.

It treats the collapse of trust as if it began with Trump, RFK Jr., Casey Means, or Elon Musk’s purchase of Twitter. The withdrawn Casey Means nomination was unfortunate, but it was a symptom of the disease, not the cause.

During the COVID pandemic, patients watched public health become inseparable from politics. They watched leaders defend restrictions with absolute certainty, then redefine the goal when those restrictions failed, lingered, or caused obvious collateral damage. They watched dissenting physicians and scientists treated not merely as wrong, but as dangerous.

Schools are the clearest example. By March 30, 2020, almost every public school district in the country was closed. Then, in the summer of 2020, the Trump Administration pushed to fully reopen schools that fall, pointing to guidance from the American Academy of Pediatrics (AAP), which emphasized the benefits of in-person education. Shortly thereafter, the AAP changed its position, distancing itself from Trump and calling for a more cautious approach.

By January 2021, 53.4 percent of United States K 12 students were still in virtual only schools. Even after schools largely reopened, restrictions continued. CDC research found that from August 2021 through June 2022, more than 14.6 million students were affected by an estimated 25,907 COVID related school closure events. California kept school masking requirements until March 2022.

A later review found that school reopenings in low transmission areas with appropriate mitigation generally were not followed by increased community transmission. Yet parents who wanted schools open were often treated as reckless or anti-science. It turned out they were actually correct.

The same selective certainty applied to lockdowns more broadly. California maintained business restrictions through June 2021, with vaccine card verification requirements for many activities until Spring 2022. Mask mandates also persisted into February of 2022, and were required on airplanes until April 2022.

Sweden is a good example of why this mattered. They aggressively re-opened schools and businesses and their overall performance complicated the confident story that strict lockdowns were the only rational path.

California should be especially humble here. While Governor Gavin Newsom imposed those sweeping restrictions on businesses, schools, and ordinary life, he was also caught dining at the French Laundry with executives from the same California Medical Association that published this op ed. People remember that. They remember being told to sacrifice by leaders and institutions that seemed to view the rules as optional for themselves.

They also remember AB 2098, a law allowing COVID misinformation by physicians to be treated as unprofessional conduct. Newsom signed it. A federal court later preliminarily enjoined enforcement against some plaintiffs because the law was unconstitutionally vague.

So when the CMA now publishes an essay warning that politicians should stay in their lane, some of us have questions. Which lane was the CMA in when its executives dined with Newsom at a fancy restaurant while ordinary Californians were being told to cancel normal life?

This is not how trust is rebuilt.

When Dr. McDonald wonders why Americans don’t trust vaccines, he needs to look at both sides of the political aisle. Americans were repeatedly told that the COVID vaccine prevented the spread of COVID. President Biden even said vaccinated people were “not going to get COVID”. This was false. President Biden blamed the unvaccinated for prolonging the pandemic and supported mandates that affected large portions of the workforce. The White House later warned unvaccinated Americans of a winter of severe illness and death.

That rhetoric is just as reckless and devoid of truth as anything that came from the political right.

Americans were also told the COVID vaccine was safe. While it largely was, political leaders were also quick to dismiss emerging evidence of the risk of cardiac complications in young men. When dissent is suppressed, Americans start to wonder what other half-truths and misinformation they are being fed. Institutional trust erodes quickly.

Americans clearly saw this suppression of free speech. Federal officials in the Biden Administration regularly communicated with social media companies about censoring COVID discussions. The Fifth Circuit found that some officials had coerced or significantly encouraged platforms. Mark Zuckerberg subsequently said senior Biden officials pressured Meta to censor COVID content.

Patients saw all of this.

Like my friend, they wondered why schools were closed so long, why they didn’t have to wear a mask at the airport bar but they did in the airplane, and why sitting on the beach alone was illegal unless you happened to be exercising.

And then they were told that the real problem was misinformation.

The breakdown in trust did not begin with the current Presidential Administration. It was accelerated by leaders and institutions across the political spectrum, including many who spoke in the name of science while behaving with stunning political blindness.

Physicians should defend evidence. They should defend vaccines when vaccines are supported by data. They should defend the doctor patient relationship from political interference.

But they should also defend humility.

They should be willing to say that some COVID policies were wrong, some lasted too long, some were defended too aggressively, and some did real harm. They should be willing to admit that trust was not destroyed only by one political tribe.

The CMA publishing a piece like this does not rebuild trust. It reminds people why they lost it.

Except in healthcare.

There, the statistics are more dire: growth in labor productivity of about 1.5% from 1993 to 2022.

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So while the average American worker is nearly twice as productive, the average hour of hospital labor is only about 1.5 percent more productive.

That is an astonishing fact.

This is despite massive improvements in healthcare technology, including imaging, laboratory medicine, devices, and pharmaceuticals. Many surgical techniques have been refined with smaller incisions and minimally invasive tools to cut down on operative time and hospital stays.

What’s even more astounding is that healthcare labor productivity has been flat during the information technology revolution. In 1993, patient charts were on paper. Lab results had to be printed out and physically placed in the chart, visible only to the person who possessed the physical copy. X-ray, CT, and MRI results were printed on plastic films that had to be hung on light boxes in the office. There was almost no portability of records.

Now we have digital records, lab results, and imaging that are far more portable than anything we had in the age of paper. Yet we are no more productive than we were then.

In a normal market, thirty years of flat productivity would signal a dying industry. It would mean that competitors were coming. Capital would flee. Customers would demand better. New entrants would find ways to do the same job cheaper, faster, or more conveniently. But in American healthcare, flat productivity does not signal failure in the usual market sense. It signals a protected, heavily regulated, third-party-paid system functioning more or less as designed.

Hospitals have not been forced to become more productive because the economic system around them does not reward productivity in the way normal markets do. The patient is not really the customer. Payment is filtered through Medicare rules, Medicaid supplemental schemes, and opaque cross-subsidies that no ordinary human being could possibly understand. In such a system, the path to survival is not necessarily to deliver more care at lower cost. It is to become better at navigating the payment maze.

This is the productivity paradox in American hospitals. We have extraordinary medical technology, highly trained clinicians, and an economy that has learned how to make nearly everything else more efficient. Yet the hospital, the central institution of American healthcare, appears to have resisted the productivity revolution.

The usual explanation is Baumol’s cost disease. Medicine, we are told, is a high-touch service industry. You cannot automate compassion. Patients are older, sicker, more complex, and more medically fragile than they were thirty years ago. Therefore, the argument goes, we should not expect hospitals to achieve productivity gains comparable to manufacturing, retail, logistics, or software.

This is the kind of half-truth that protects an inefficient system from scrutiny.

Yes, healing is different from making widgets. But anyone who has practiced medicine over the last few decades knows that clinical work itself has not been frozen in amber. We are not practicing 1993 medicine. MRI did not replace the neurological exam, but it radically compressed diagnostic uncertainty. Countless other technologies have improved the speed and precision of care. Much of what once required exploratory surgery, serial exams, prolonged hospitalization, or educated guesswork can now be seen, measured, and treated with tools that would have seemed miraculous to physicians a generation ago.

Ask any practicing physician where the missing productivity went, and he will not give you a lecture on Baumol. He will point to the electronic health record and the endless parade of mandatory clicks that seem to multiply faster than any real clinical need.

The Annals of Internal Medicine time-motion study on ambulatory physicians found that for every hour physicians spent in direct clinical face time with patients, they spent nearly two additional hours on EHR and desk work during the clinic day. Outside office hours, they spent another one to two hours each night doing additional clerical and computer work.

This is where the productivity gains went. The time saved by better technology was consumed by more administrative work and data entry. We invented tools that should have made the physician more productive, then wrapped those tools in billing rules and compliance rituals until they became a tax on clinical judgment.

The EHR was sold as a tool for better information. But the EHR did not emerge into a functioning market for medical care. It emerged into a reimbursement bureaucracy. Medicare’s “meaningful use” program required physicians using certified EHR technology to capture, exchange, and report specific clinical data and quality measures, beginning in 2011. That transformed the chart from a clinical record into a billing document that happened to contain some medical information.

That distinction matters. A clinical note is supposed to communicate what is wrong with the patient and what we are going to do about it. A billing note is a different product. We pretend they are the same document because the fiction is convenient for everyone except the people actually taking care of patients.

In many clinics, expensive clinical labor is now deployed to feed the chart before the visit even begins. Some of this work is clinically useful. Much of it is defensive. The purpose is not always to understand the patient better. Often it is to make the chart billable, auditable, and administratively complete. You’ve probably experienced this every time you go to a doctor’s visit and are asked to fill out a stack of paperwork.

The hospital labor force reflects the same problem. Paragon notes that hospital employees per bed rose from 4.56 in 2000 to 6.32 in 2023, a 39 percent increase. To be fair, some of that may reflect more complex inpatient care as simpler services move outpatient. But it also raises the obvious question: how many of those additional workers are making patients better, and how many are helping the institution survive the administrative complexity we have built around care?

The defenders of the status quo will object that healthcare is complicated. They are right. But they often draw exactly the wrong conclusion from that fact.

Because healthcare is complicated, we should be more humble about centralized control, not more ambitious. Complexity is an argument for better feedback, not an argument for more bureaucracy. It is an argument for prices that patients can see, contracts that physicians can understand, and institutions that must compete on value rather than market power and coding sophistication. That’s how efficiency is rewarded.

In the rest of the economy, software tends to reduce friction. It lets a small business manage payroll, inventory, communication, accounting, advertising, and sales with tools that would once have required entire departments. In healthcare, software often does the opposite. It creates new work, new alerts, new compliance pathways, new reporting obligations, and new opportunities for denial.

That is the difference between technology disciplined by customers and technology disciplined by regulators and payers.

This is why the “Baumol’s cost disease” story is so incomplete. It treats hospital productivity stagnation as if it were an unavoidable feature of human care. But the lived reality of medicine suggests something more specific and more damning. We did not fail to invent productivity-enhancing tools. We invented many of them. Then we embedded them in a financing system that converted clinical time into administrative output.

The MRI made diagnosis faster. The EHR made documenting the diagnosis slower.

Because this is ultimately a policy choice, we should stop pretending that the solution is another layer of policy complexity. The answer begins with the recognition that productivity in medicine will not improve until the people delivering care are rewarded for delivering care, rather than for feeding the documentation machine.

American hospitals do not have flat productivity because healing is immune to improvement. They have flat productivity because we have built a financing and regulatory structure that protects inefficiency and rewards administrative sophistication at the expense of true efficiency. Until that changes, technology will keep making medicine more expensive rather than more productive.

So it’s understandable to feel a little spiteful joy when California physicians see a ballot measure aimed at capping hospital executive pay.

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The proposal, now eligible for the November 2026 ballot, would limit compensation for certain health care executives, managers, and administrators to $450,000 per year in total annual compensation. This includes salary, bonuses, stock options, company vehicles, paid time off, and other benefits. Even a parking space could count toward compensation.

It would also restrict severance above that amount, require annual reporting, and allow enforcement by the Attorney General or taxpayer litigation. The cap would rise annually by the lesser of inflation or 3.5 percent. The measure applies to covered hospitals and medical entities, including nonprofit and for-profit hospitals and some medical groups.

The political appeal is obvious. SEIU-UHW, which is backing the measure, argues that excessive executive pay should be redirected toward patient care, staffing, and lower costs. That message is not hard to sell for the populists among us.

I understand the temptation to cheer. I have spent enough time inside hospitals to know that the resentment is not imaginary. It is not crazy for a burned-out doctor to look at an eight-figure executive compensation package and feel moral disgust.

But that doesn’t fix the economics.

A wage cap is a price control on labor. That does not stop being true because the labor belongs to executives rather than nurses or physicians. Economists have shown for generations that price controls distort the signals that help allocate scarce resources. Price ceilings do not eliminate demand; they change how demand is satisfied.

That is the first problem with the California proposal. It assumes that if a hospital board is prohibited from paying a chief executive more than $450,000, they’ll retain the same executive talent and the excess money will simply flow to bedside care. That is possible in a narrow accounting sense, but it is not how complex organizations behave. If a large health system believes it needs a certain type of managerial skill, it will still seek those things. It may call them something else. It may outsource them. It may pay for them through consulting contracts, management services agreements, affiliated entities, deferred compensation, perks, or layers of subordinate executives.

Hospitals are incredibly complex organizations. I’ve long argued we should simplify many of the rules, but for now the rules are there, and it requires a specific skill set to navigate them. It also requires someone willing to work long-hours, making politically impactful, uncomfortable decisions. A hospital that cannot legally pay one competent executive the market-clearing rate may hire multiple vice presidents, consultants, contractors, and compliance specialists to divide the same work across titles. The measure’s drafters appear aware of this risk, which is why the compensation definition is broad and why the proposal reaches some contractors and subcontractors who exercise executive, managerial, or administrative authority. But that only illustrates the point. Once policy tries to centrally define and police the price of managerial work, the game shifts. The hospital does not become simpler. The compliance apparatus becomes larger.

This matters because administrative bloat is already one of the defining features of American medicine. California alone had an estimated 57,310 medical and health services managers in 2023, according to federal occupational data, though that category is narrower than the full universe of health care administrators, compliance staff, billing personnel, and managerial employees.

Meanwhile, the California Medical Association has come out strongly against the proposal, warning that it could affect physicians, nurses, and health care leaders who take on administrative, training, or leadership roles, and could destabilize access to care. As someone who wants more sites able to deliver care, including independent physician-owned hospitals, ASCs, and practices, I don’t like the idea of more compliance. These rules will harm physician-owned facilities and practices more than the large corporations. Large corporations have teams of lawyers to navigate complex rules. The independent neurosurgery practice does not.

High hospital executive pay is not the root cause of American health care dysfunction. It is one expression of a politically protected system in which enormous sums flow through opaque institutions that consumers cannot easily discipline. Hospital prices are not high because the CEO’s salary appears on a tax filing. They are high because hospital systems have acquired market power and because there is more money to be made in gaming various governmental revenue streams than there is in delivering a good product.

The evidence on consolidation is not subtle. KFF has summarized a large body of research finding that hospital consolidation tends to raise prices, with stronger evidence for price effects than for quality improvement. KFF has also found that one or two health systems controlled the entire market for inpatient hospital care in nearly half of metropolitan areas in 2024. GAO reported that hospital-physician consolidation has risen substantially and is generally associated with increased spending and prices, while the evidence for improved quality is weak or mixed. RAND’s hospital price work found that private insurers and employers paid, on average, 254 percent of Medicare rates for the same services in 2022, with hospital market power helping explain some of the variation.

California health care spending reached roughly $405 billion in 2020, according to the state’s Office of Health Care Affordability. National health expenditures reached $5.3 trillion in 2024, with hospital care remaining one of the largest categories of spending. Against numbers of that scale, executive compensation may be politically inflammatory but still fiscally small. That does not mean it is virtuous. It means we should be honest about magnitude.

There is also a historical warning here. In 1993, Congress tried to restrain executive pay by limiting the corporate tax deduction for compensation above $1 million for certain top executives, while leaving an exception for performance-based pay such as stock options. The predictable result was not an age of executive modesty. Compensation shifted in form. Stock options and performance-linked pay became a much larger part of executive compensation, and some researchers have argued that the $1 million limit effectively became a target for base pay rather than a ceiling on total compensation.

That is the recurring pattern of price controls. Politicians cap the visible number. Markets and institutions migrate to the less visible channel. Somehow the bureaucracy always survives the reform.

None of this excuses hospital executives. Many of them are rent-seekers in the plainest sense of the term. They operate inside institutions that have become expert at extracting revenue from complexity. Some of these leaders talk the language of mission while presiding over systems that sue patients and demand public subsidies. The anger aimed at them is not irrational.

A salary cap feels satisfying because it gives the public a villain and then symbolically punishes him. But good policy has to do more than satisfy resentment. It has to improve incentives. A hospital executive pay cap risks doing the opposite. It leaves the consolidated hospital system in place because large systems have the compliance infrastructure to deal with the new rules. Meanwhile, we haven’t touched site neutrality, 340B, and a host of other policies that drive consolidation in the first place.

Physicians should be especially wary of this kind of populism. The moral impulse behind this measure is understandable. The economic logic is not. A wage cap treats the visible irritation while leaving the pathology untouched. If California wants to make health care less expensive and more humane, it should go after the structures that made hospital executives so powerful in the first place.

Now, of course, the blood thinner was causing a problem. She had blood in her head, and if it continued to bleed, it could become life-threatening. So doctors had to stop her blood thinner. When the bleeding got a bit bigger on a repeat CT scan, the team reversed the blood thinner with a medication that restored her blood’s natural ability to clot. The bleeding in her head stopped getting bigger, and she was stable.

Two days later she suffered a massive stroke and died.

Was it an error to reverse her blood-thinning medication? We can never know the counterfactual. Had she continued her blood thinner, there is a chance the intracranial bleeding would have stopped anyway. Maybe she avoids having the stroke and lives another few years. Maybe the hemorrhage continues and she dies after undergoing an unsuccessful operation to save her life. We can never know.

But this is exactly the kind of case that becomes dangerous when judged backward by a reviewer who already knows the outcome. If she dies of the expanding brain bleed, the reviewer can ask why anyone continued anticoagulation in an elderly fall patient with blood in her head. If she dies of the stroke after anticoagulation is reversed, the reviewer can ask why anyone stopped the medicine that was protecting her from embolic stroke. The same clinical tradeoff can be condemned from opposite directions depending entirely on which bad outcome occurred.

You have probably heard the viral claim that doctors’ errors are the “third leading cause of death.” That story is not a sober accounting of negligent medical practice. It is based on a few severely flawed studies that take the brutal uncertainty of caring for sick patients, reclassify bad outcomes as preventable deaths, and then use the resulting number to justify an ever-expanding bureaucracy.

Of course, patient safety is important. But too often, the safety narrative refuses to admit the central fact of clinical medicine: doctors are not piloting healthy passengers through a well-engineered system. We are treating human beings whose bodies are failing in complex, overlapping, and often irreversible ways.

That is not a theoretical concern. In one JAMA study of hospital deaths, physician reviewers often disagreed about preventability, and the authors concluded that preventability can be “in the eye of the reviewer.” They found that while 22.7 percent of reviewed deaths were judged at least “possibly” preventable, only 6 percent were rated probably or definitely preventable. After accounting for prognosis, reliability, and the likely survival benefit of optimal care, they estimated that only about 0.5 percent of patients who died would have lived at least three months in good cognitive health if optimal care had been provided.

Yet, there is a persistent claim: that doctors are just offing patients. And it is often emphasized with the analogy that doctors are killing the equivalent of several jumbo jets full of patients every week. Then comes the inevitable appeal to aviation. If commercial pilots crashed planes at this rate, we are told, the public would revolt. Therefore, hospitals must be more like airlines.

It is a powerful analogy. It is also wrong.

Not wrong because doctors never make mistakes. We do. Every physician who has practiced long enough carries memories that do not leave. Medicine is practiced by human beings, on human beings, under uncertainty, and the stakes are often unforgiving.

But taking care of patients is not the same as flying an airplane. Every patient eventually dies. Thankfully, not every Boeing ends up in a fiery wreck strewn about fields, mountains, or oceans. Pilots generally fly an airplane only after it has been maintained and cleared. Physicians often enter the care of a patient when they are already near death, as if a pilot took over the plane as it was on fire and heading toward a mountain.

Much of medicine consists of choosing between competing dangers while knowing that either choice may end badly. Crash the plane into the forest or into the ocean. Either way, it’s going down. This is the trap hidden inside many medical error statistics. They treat adverse outcomes as if they were self-evidently preventable, instead of bad things that happen to sick people.

The modern version of this story traces back largely to two highly influential publications: the Institute of Medicine’s 1999 report, To Err Is Human, and a 2016 BMJ paper by Marty Makary and Michael Daniel arguing that medical error should be considered the third leading cause of death in the United States. The IOM report relied heavily on earlier chart-review studies from Colorado, Utah, and New York, then extrapolated those findings to the country as a whole. Using the Colorado and Utah data, the report estimated 44,000 deaths per year from medical errors; using the New York data, the estimate rose as high as 98,000. Makary and Daniel later popularized a much larger figure, more than 250,000 deaths annually.

These numbers entered public discourse as if they were direct measurements. They were not. The IOM estimates were extrapolations from state-level retrospective chart reviews. The Makary estimate was built by combining prior studies that used different methods, without a formal meta-analysis and without fully accounting for statistical uncertainty. AHRQ’s patient safety review notes that determining preventability is difficult, that physician reviewers often show only moderate agreement, and that the Makary estimate extrapolated from studies using different methodologies.

That is the first problem: the numbers sound precise, but the underlying judgment is often subjective.

The second problem is even more important. The underlying studies often struggled to determine whether an adverse event actually caused the death. Shojania and Dixon-Woods, writing in BMJ Quality & Safety, criticized the “third leading cause” claim for exactly this reason. They argued that the estimate combined prior studies too simplistically, failed to follow accepted standards for quantitative synthesis, and did not adequately address whether the adverse events detected by review tools actually contributed to death. Critically ill patients have more interventions, more adverse events, and higher mortality. That does not mean the adverse event killed them. It may mean that while an error occurred, it did not meaningfully change the outcome. Again, to the airline analogy, it’s as if a pilot gets judged for hitting a little turbulence in a plane that’s destined to crash anyway.

This is not an abstract statistical quibble. It is the difference between a patient who dies because a doctor gave the wrong drug and a patient who dies because she had metastatic cancer, septic shock, renal failure, delirium, and then experienced an adverse event during the last days of life. They are not morally or clinically the same thing.

More recent evidence suggests the older headline estimates were too high. A 2020 systematic review and meta-analysis in the Journal of General Internal Medicine estimated that about 3.1 percent of hospital deaths were preventable. Applied to the United States, that corresponded to roughly 22,000 preventable deaths per year, and about 7,000 among patients with a life expectancy greater than three months. That is still a serious number. It is not nothing. But it is not the third leading cause of death in America. It’s not even close.

The difference matters because the patients in these studies are not randomly selected healthy Americans walking around in perfect condition until a doctor harms them. They are hospitalized patients, often elderly, frail, chronically ill, acutely decompensating, or already near death. Many are receiving multiple interventions precisely because their baseline risk is high. That does not excuse preventable harm. But a bad outcome in such a patient is not automatically evidence of an error.

The public is uncomfortable with this because the public wants medicine to be deterministic. They want to prevent the next error with a new rule.

There is a tragic irony here. The exaggeration of preventable error can make genuine patient safety worse. When every adverse event becomes evidence of system failure, physicians learn to avoid risk, and systems learn to game the metrics to obscure the actual truth.

That may protect the institution. It does not necessarily help the patient.

After To Err Is Human, American medicine embraced a vast quality and safety apparatus. Some of it was valuable. Surgical time-outs, central line infection prevention, standardized handoffs, and checklists for high-risk recurring tasks can reduce harm. Pronovost’s central-line work, for example, produced large reductions in catheter-related bloodstream infections, and the WHO surgical checklist study found lower complication and death rates after checklist implementation. No serious critic should deny that safety systems can work when they target concrete, recurring, preventable failures.

But now the checklist has ballooned into a bureaucratic obstruction to actual patient care. In some hospitals, it has expanded into a lengthy ritual, including everything in the checklist from team introductions to acknowledgment of the patient’s pronouns (this is true, not hyperbole).

The problem is that the safety movement did not stop at identifying clear, preventable failures. It became a governing philosophy. It gave administrators, regulators, payers, and quality officers a moral language for controlling the clinical encounter.

From that point forward, more and more of medicine became subject to measurement from above. Physicians were asked to satisfy more and more quality metrics. As the saying goes, “not everything that counts can be counted, and not everything that can be counted counts.”

This burden is not theoretical. A Health Affairs study by Lawrence Casalino and colleagues estimated that physician practices in four common specialties spent an average of 785 hours per physician per year dealing with quality measure reporting, at a cost of more than $15.4 billion annually. That is time, labor, and attention pulled away from actual patient care and redirected toward measurement infrastructure.

Hospitals face the same machinery on a larger scale. A JAMA study found that Johns Hopkins Hospital was reporting 162 quality metrics across multiple programs. The authors estimated that collecting and reporting those metrics required 108,478 person-hours and more than $5 million in personnel costs, plus more than $600,000 in vendor fees, in a single year. Extrapolated across thousands of acute care hospitals, the authors suggested the national burden runs into the billions.

Private practices feel this even more acutely. A small independent physician group does not have an army of compliance officers. It has doctors, nurses, medical assistants, and maybe a thin administrative staff trying to keep the doors open. Every new reporting requirement adds fixed cost. Large hospital systems can absorb those costs, spread them across departments, and then use compliance complexity as another reason independent physicians should sell. This is one way the quality-metric industrial complex becomes another force driving consolidation.

That consolidation is not hypothetical. The AMA’s 2024 physician practice benchmark found that only 42.2 percent of physicians were working in private practice, down from 60.1 percent in 2012. Over the same period, the share of physicians working for hospital-owned practices or directly employed by hospitals increased. Regulation does not always harm the largest incumbents. Often, it protects them by raising the fixed cost of survival.

This is one of the recurring patterns in American health care. A problem is identified, often a real one. A centralized solution is proposed. The solution requires measurement, reporting, enforcement, and administrative infrastructure. Large organizations adapt. Small organizations struggle. The burden then becomes an argument for more consolidation, more standardization, and more bureaucracy. Eventually, the original problem remains, but now we have fewer independent physicians, higher costs, and more people whose jobs depend on the machinery continuing to expand.

And once the metric becomes the target, the system starts optimizing for the metric.

Anyone who has worked in hospitals has seen versions of this. Patients are transferred between services in ways that make the mortality numbers look better for one department and worse for another. Documentation specialists hound doctors to capture every comorbidity so the patient appears as sick as possible on admission, which improves risk-adjusted performance. Hospitals test urine on admission, in part because if an infection is coded as “present on admission,” it is quantified differently than if it is coded as hospital-acquired. CMS policy explicitly distinguishes conditions present on admission from selected hospital-acquired conditions, and hospitals can face payment consequences for certain conditions not present on admission.

In some cases, the metrics actually cause more deaths. This happened when the readmission reduction program successfully reduced the number of heart failure patients being readmitted to the hospital. Unfortunately, as readmissions dropped, mortality rose. Patients who needed readmission were sent home, rather than bring down the hospital’s statistics. They died because of a metric.

The more we attach money, reputation, and punishment to simplified metrics, the more sophisticated institutions become at managing the numerator, the denominator, and the documentation surrounding both.

These are all byproducts of a system that rewards metrics more than patient care because people thought the metrics could fix patient care.

They cannot.

Bad things happen to sick people. That sentence sounds harsh only because modern health care has trained us to speak as if mortality itself were a quality defect. But every physician knows it is true. The doctor is not the only causal force in the room.

The medical error narrative, as commonly presented, offers the public a fantasy that enough regulation can make illness behave like a mechanical system. It tells policymakers that if doctors would simply comply with more rules, hundreds of thousands of deaths might disappear.

The honest path is harder. It begins by admitting that medical care involves tradeoffs, not guarantees.

Doctors should be accountable. But accountability built on inflated statistics and bad analogies will not make patients safer. It is doing the opposite, replacing judgment with metric gaming.

Doctors are not crashing jumbo jets. They are caring for fragile human beings in a world where risk cannot be abolished, only moved around. The sooner we admit that, the sooner we can have a serious conversation about patient safety.

The current debate over hospital consolidation is increasingly becoming a debate over information. Regulators can only challenge transactions they can see, investigate, and understand. Hospitals, meanwhile, argue that transaction review requirements can become costly and burdensome. The tension is visible in the FTC’s renewed focus on healthcare competition and certificate-of-need laws described in the FTC’s new healthcare playbook, alongside hospital industry efforts to expand exemptions from premerger filing requirements discussed in the latest debate over Hart-Scott-Rodino filings.

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