Reforming U.S. Hospitals in a Single-Payer System

Previously, I discussed how hospital costs are managed in European countries such as Germany and the Netherlands with multi-payer systems. In this post, I want to examine how peer countries that use variants of the single-payer model approach hospital management and cost control. As noted earlier, single payer can take many forms—from systems fully managed by government to “hybrid” systems that allow some private health care delivery to operate alongside public financing.

I have also shared my preference for building on the Affordable Care Act by adding a public option—similar to Medicare, a single-payer program—to cover the poor and uninsured through government subsidies. Following Australia’s example, private insurance would remain available for those who want it, but it would be more heavily regulated. I believe this approach is more politically feasible and, if designed well, could produce better health outcomes at lower cost.

As a reminder, European countries differ from the U.S. in several important ways:

· Universal coverage: Everyone is covered. Hospitals do not have to manage the same burden of uninsured or underinsured patients, which is a major advantage.

· Lower drug prices: Health technology assessment and centralized bargaining reduce drug costs, bringing relief to both patients and hospitals.

· Greater emphasis on primary care and prevention: Strong primary care in peer countries helps patients receive treatment earlier, when conditions are simpler and less expensive to manage. That lowers avoidable emergency department visits and hospital admissions.

A single-payer program would introduce several additional reforms with significant potential to manage hospital costs and improve care outcomes.

A single-payer system brings with it two of the most effective tools for reducing health care costs: administrative simplification and maximum negotiating leverage.

U.S. hospitals are saddled with a massive administrative burden built around managing:

· Billing and coding: Fragmented commercial insurance designs, complex procedural coding, and EHR documentation require extensive manual back-office processing. In a single-payer system, claims would be submitted to one government or public entity.

· Prior authorization and claims rework: Insurer policies such as prior authorizations and post-payment audits force hospitals to spend enormous resources on appeals and claims management. A single-payer system would sharply reduce the hours currently spent appealing denied claims.

· Regulatory and reporting complexity: Onerous reporting requirements and accreditation demands consume significant time from both clinical and administrative staff. Reporting requirements would continue under single payer.

Today, this administrative burden accounts for an estimated 15% to 31% of total U.S. health care expenditures, adding overhead to hospital budgets and diverting billions of dollars away from patient care.

By contrast, administrative costs in European health care systems generally range from 1% to 5% of total spending, while single-payer systems are often closer to 0.77% to 2%.

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In addition to administrative simplification, a single-payer system can control hospital costs through two powerful mechanisms:

· Standardized fee negotiation: Because the government is the only insurer, it has immense bargaining power. It can set uniform rates for hospital services and medical devices, standardizing costs nationwide.

· Global budgets: Instead of paying for every individual service, the central authority negotiates a fixed annual operating budget with each hospital. Hospitals must operate within that lump sum, which caps total spending and reduces fee-for-service incentives to perform unnecessary tests and procedures.

By contrast, U.S. hospitals currently rely on a chargemaster: a database listing the retail price for every medical service, procedure, supply, and medication a hospital provides. It functions as the hospital’s “sticker price” and serves as the starting point for billing. These prices are often far higher than the actual cost of care and represent the maximum possible charge.

Anyone who has received a hospital bill knows what this looks like. Yet patients who try to get these prices in advance are often met with a brick wall.

Almost no one pays the chargemaster price. Insurers reimburse hospitals based on pre-negotiated discounted rates. Hospitals generally apply some form of financial assistance or discounted “self-pay” rate for uninsured patients. The variation between hospitals—and the complexity and confusion this creates—is enormous.

A single-payer system would bring this approach to a halt.

As discussed in the previous post, a multi-payer system can also standardize fees and manage global budgets. But a single-payer system can generally do so more efficiently and with lower overhead.

In health care, single-payer financing and regional planning are complementary. Single payer replaces private insurers with one public fund, while regional planning uses that centralized funding to allocate resources—such as hospitals, clinics, and specialized equipment—based on community need rather than market competition.

Here’s how that would work:

· Unified budgeting: Instead of relying on fluctuating profits to fund new technology or facility renovations, hospitals would receive capital investments through predetermined budgets, much like public fire departments.

· Needs-based resource allocation: Regional boards would assess local demographics and distribute medical facilities and technology equitably. This would help ensure that medically underserved communities receive necessary infrastructure while avoiding duplicative services in other areas.

· Elimination of waste: Removing the profit motive from capital investment would reduce incentives for large hospital systems to shut down struggling rural or safety-net clinics—a common crisis driven by corporate bottom-line planning.

· Quality improvement: Centralized capital purchasing would allow highly specialized procedures, such as organ transplants, to be regionalized. That can improve outcomes by ensuring care teams perform enough procedures to maintain proficiency.

Moving to a single-payer system would come with significant challenges.

· The transition would be a major shift: Hospitals would face significant financial and structural changes affecting revenue, capital allocation, and daily operations.

· Fixed revenue and budget caps: Hospitals would lose the ability to negotiate different rates with private insurers. Instead, they would rely on uniform government-set reimbursement schedules or fixed global budgets, limiting their ability to generate operating margins for unexpected cost spikes.

· Capital funding restrictions: In the U.S., private payer margins help fund expensive facility expansions and cutting-edge medical technology. Under single payer, capital improvements are typically subject to government approval and regional allocation.

And yet, other countries have found the will—and the way—to adopt some variation of single payer, a better multi-payer system, or both. They are achieving better outcomes at lower cost.

The status quo is not sustainable.

I invite you to share your thoughts and feedback in the comments.