Personal experience with specific interventions reflects something real: US cancer survival rates, cardiac procedure outcomes, and access to cutting-edge treatments are genuinely strong for people with good coverage. That's not disputed.
The cost-outcome tradeoff shows up at the population level. US life expectancy: 77.5 years. Spain: 83.6. UK: 81.6. Infant mortality: US 5.4 per 1,000 vs. Spain 3.4, UK 3.7 (OECD 2023). The US spends $14,570 per capita. Spain spends $3,300, UK $4,100. If the premium were buying 10 extra years of life expectancy and half the infant mortality, it might be worth the argument. The data shows the opposite at population scale.
The newsletter's framing isn't that US clinical quality is poor. It's that the US is paying $3T more per year than Japan (same life expectancy, lowest infant mortality in OECD) for aggregate outcomes that are worse.
Fair point about KPI gaming, and it's a real problem in value-based care. But the fix in Issue #3 (commercial reference pricing at 200% of Medicare) is a price cap, not a quality incentive structure, so it doesn't directly create the risk-avoidance problem you're describing.
Montana Medicaid has used 200% Medicare reference pricing since 2015. Published evaluations haven't shown measurable quality deterioration or patient-selection effects in that program. The RAND Round 5.1 study underlying the savings estimate controlled for case mix, so it's comparing equivalent procedures at equivalent acuity. Risk adjustment is still genuinely hard at the individual level, and the concern is well-founded for P4P schemes. It's a separate question from whether commercial payers should pay 254% of Medicare rates for the same surgery at the same hospital.
Your example captures two distinct extraction mechanisms in one transaction. The $25 to $125 gap is spread pricing: the PBM pockets the difference between what they pay the pharmacy and what they bill the plan. The deductible non-application is a separate mechanism: by routing through their own mail-order or in-network channel, the PBM ensures that cost doesn't reduce your out-of-pocket maximum, extending your exposure for the year.
The FTC's 2024 Interim Report documented $7.3B in specialty drug markups from the Big 3 PBMs (CVS Caremark, Express Scripts, OptumRx) in a single year. The Ohio Auditor found PBM spread pricing extracted $224.8M from one state's $2.5B Medicaid drug budget annually. This is the subject of the next issue being released this Sunday.
Those figures are in the right range, and the full picture is larger. The CMS NHE 2023 data puts total US healthcare administration at roughly $1.1-1.7T annually (depending on methodology), building on Woolhandler and Himmelstein's 2020 Annals paper ($812B in 2017 dollars). The per-capita comparison against 10 OECD peers: US $4,983 vs. a peer average of $884. That 5.6x gap is the number Issue #5 of this series will examine in detail, covering three separate computation methodologies and why the estimates range so widely. All source code will be in the repo: https://github.com/rexrodeo/american-healthcare-conundrum
The policy lever that addresses this is billing standardization, not just insurer reform. Countries like Germany and Switzerland run much lower admin under private insurance through standardized claims formats and all-payer rate setting.
The Dutch model is a useful counterexample to the argument that you need a single-payer structure to contain costs. Netherlands uses regulated private insurers with community rating and risk equalization, yet achieves per-capita spending well below the US (roughly $7,200 vs. $14,570 in 2023 OECD data). The direct insurer-hospital negotiation you describe is also how Germany's sickness funds operate.
The US equivalent would be all-payer rate setting. Maryland has run a statewide all-payer hospital rate system since 1977 with documented cost containment. Issue #3 of this series focuses on a lighter-weight near-term version: capping commercial hospital payments at 200% of Medicare (already used by Montana Medicaid and thousands of self-insured employers). The Dutch model shows a stronger structural fix is feasible. The question is political path, not technical feasibility.
The obesity adjustment is worth quantifying. US adult obesity: 42% (CDC). UK: 28%, Australia: 31%, Germany: 22%. Those gaps are real, but they don't explain a 2.5x per-capita spending differential. The Commonwealth Fund's 2021 analysis controlled for age, income, and chronic condition burden; the US still spent roughly $5,000 more per capita than the next-highest spender (Switzerland).
Obesity also matters less than assumed in hospital pricing: a hip replacement costs $29,000 commercially in the US regardless of patient BMI, vs. $15,000 in Germany and $9,000 in Spain (iFHP 2024). The cost structure is in the pricing system. Johns Hopkins researchers estimated eliminating US obesity would reduce healthcare spending by about 12%, real but not 2.5x. Repo with methodology: https://github.com/rexrodeo/american-healthcare-conundrum
Correction on ownership breakdown: A CMS cost report expert flagged that my CTRL_TYPE mapping in the HCRIS processing script was wrong — I had for-profit and nonprofit hospital categories swapped. The corrected figures: for-profit hospitals have a 4.11x median markup (highest), nonprofits 2.46x, government 2.22x. The 254% commercial-to-Medicare finding ($73B savings estimate) is unaffected — that's from RAND, not my HCRIS analysis. Corrected code and a full audit report are on GitHub. This is exactly why the code is open-source.
The wage adjustment is worth testing with data. Japan's GDP per capita on a PPP basis is roughly $47,000 versus the US at $80,000, a 1.7x income gap. The per-capita healthcare spending gap is $14,570 vs $5,790, a 2.5x ratio. Healthcare costs outpace the income gap by a meaningful margin even on PPP terms.
The outcome data is what makes the adjustment argument hard to sustain. Japan has the highest life expectancy in the OECD (84 years) and the lowest infant mortality (1.7 per 1,000). If higher spending were buying proportionally better outcomes, the wage argument would carry more weight. The US spends 2.5x more and gets worse population health statistics. PPP narrows the gap, it doesn't close it.
The above was comparing the average in Japan to the average in the US. If you want to compare medians, it’s about $43,000 in the U.S. (2023) versus 3.96 million Yen (2025). See: https://e-housing.jp/post/average-salary-in-japan-2024-insig.... At current exchange rates that’s about $25,000. So that’s the exact same 1.7x ratio as for the averages.
Those figures are consistent with what Issue #5 (still a couple weeks out) of this series computes from CMS NHE 2023 data and OECD health statistics. The 10-peer OECD average lands at $884 per capita, putting the US at 5.6x. Scaled to 335M people, that's $1.37T in excess admin annually.
The Woolhandler/Himmelstein 2020 figure ($812B) updates to $1.13-1.66T in 2023 dollars when adjusted for healthcare inflation. The CMS narrow admin estimate ($410B) plus CAP's billing complexity analysis ($496B) gives a $906B floor. Those three methodologies agree on the floor, disagree on the ceiling. Issue #5 covers all three and explains why the range is so wide. Coming soon.
The rebate pass-through rule (effective 2028) is a real step, and worth tracking. But rebate retention is one of six extraction mechanisms the Big 3 PBMs use. The FTC's Interim Reports I and II (2024-2025) documented $7.3B in specialty drug markups alone, separate from rebate games. The Ohio Auditor found PBM spread pricing extracted $224.8M from a single state's $2.5B Medicaid drug budget in one year.
The rebate rule doesn't touch spread pricing, formulary manipulation, or self-preferencing to vertically integrated pharmacies. Issue #4 (scheduled for releases 3/22) of this series covers the full mechanism stack and what each proposed reform actually targets. Repo: https://github.com/rexrodeo/american-healthcare-conundrum
The cost-outcome tradeoff shows up at the population level. US life expectancy: 77.5 years. Spain: 83.6. UK: 81.6. Infant mortality: US 5.4 per 1,000 vs. Spain 3.4, UK 3.7 (OECD 2023). The US spends $14,570 per capita. Spain spends $3,300, UK $4,100. If the premium were buying 10 extra years of life expectancy and half the infant mortality, it might be worth the argument. The data shows the opposite at population scale.
The newsletter's framing isn't that US clinical quality is poor. It's that the US is paying $3T more per year than Japan (same life expectancy, lowest infant mortality in OECD) for aggregate outcomes that are worse.
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