Reducing Healthcare Prices

In a video interview with Pharma Commerce, Marschall Runge, MD, PhD, dean of the University of Michigan Medical School and author of The Great Healthcare Disruption, addresses the potential impacts of a federal cap on Medicaid provider taxes and how such a policy could affect hospital systems. particularly in states like Michigan that have uniquely implemented Medicaid expansion.

Runge emphasized that hospitals already operate on extremely thin margins when it comes to Medicare and Medicaid reimbursement. Any policy that restricts revenue opportunities from these programs threatens their financial sustainability. He noted that, contrary to popular belief, hospitals often struggle just to break even under current public payer rates, and additional funding through provider taxes has historically helped improve access to care.

His primary concern centers on patient access. Runge pointed out that healthcare access is already limited due to workforce shortages—especially in primary care—and that wait times are growing. Reducing hospital revenue by capping provider taxes could exacerbate these issues, particularly in underserved areas.

He warned that a federal cap would create new challenges, not only financially but operationally, by potentially limiting patient access across the entire care continuum, from primary to specialty services. He stressed that focusing solely on budgetary savings without considering the downstream impact on health outcomes and system strain is shortsighted. In his view, the proposed cap would have minimal benefit to the federal budget but could lead to long-term harm to patient care and public health infrastructure.

Runge urged policymakers to think beyond dollars and cents and consider how such decisions affect real-world health outcomes, workforce strain, and already fragile access points within the healthcare system.

He also comments on how this proposal might affect access to care for Medicaid patients, particularly in expansion states; alternatives or modifications he would propose to ensure both fiscal responsibility and the sustainability of hospital funding; the role academic medical centers should play in shaping Medicaid policy moving forward; and much more.

A transcript of his conversation with PC can be found below.

PC: What alternatives or modifications would you propose to ensure both fiscal responsibility and the sustainability of hospital funding?

Runge: What I'll suggest—and this has been an interest of mine for a number of years—is that we rethink how we how we pay for and how we provide healthcare. I'm going to make a very unpopular suggestion. In the United States, what really separates us from our peers, is a baseline of healthcare for everyone. Now, I'm not talking about a blue plate special. I'm not talking about universal healthcare. I'm not talking about Medicare Advantage, which has been a uniform failure overall, but I'm talking about a baseline level of care.

Everyone knows that if you look at the cost of healthcare in the United States—and you can compare it to our peers of other industrialized, really wealthy countries—we spend far more on healthcare than any of them. It's over $12,000 per capita in the United States. If you look at Germany, Switzerland, Denmark, those countries, Singapore—take your pick—they're in the range of $4,000 to $6,000 per person, so their costs are much less than ours.

Then, if you look at it from a different standpoint, what about primary care? If you look at the number of primary care providers, our number of primary care providers per capita in the United States is the least. What is that all about? Well, partly, it's about that we don't have any baseline healthcare. Even if you talk about the countries that are most well known for having great government health insurance—take Denmark. It always gets high marks. Well, 40% to 50% of people in Denmark—they never talk about this, but they have supplemental private insurance.

Part of the cost is administrative costs, and f you look at the cost of commercial life insurance, the administrative costs range from 14% to 15%, or even higher, of the healthcare dollar goes into their administration. If you look at the administrative costs for Medicare, it’s 2%. People will complain about Medicare, the VA, or various things, but they deliver an excellent level of healthcare at a bargain price, in terms of the administrative costs. The federal government has enormous purchasing power. If you think about the some of the newer drugs, such as the weight loss drugs, they're costing $1,200 a month. I have great friends in the pharmaceutical industry with both purchasing that could get down to $300 or $250 per month, which puts it in a very affordable range. Why don't we think about taking advantage of that?