The cost of health care administration: What’s an example with applicable lessons?

What might serve as an example for the health care sector to use? Federal lenders standardized mortgages across the country starting in the 1970s. Kevin Schulman, MD, MBA, is an internal medicine physician and professor of medicine at Stanford University, explains a public-sector example that could be analogous for health care.

Medical Economics: What might be a precedent that could resolve administrative costs in health care? Look to mortgages that banks use, for example

Kevin Schulman, MD, MBA: And so a couple of the precedents people who have solved analogous problems, one that I love to highlight is mortgages. So it turns out, in the 1960s banking was a great business. The FDIC (Federal Deposit Insurance Corp.) set passbook interest rates, banks could then loan mortgages above the interest rates, and the banker could go play golf all day. The way we wrote mortgages in the 1960s was a custom, you know, the reason why you would go to a certain bank is they would write a custom mortgage for you. So, the end of the 1960s we started developing money market funds. And so interest rates and money market funds were higher than passbook savings rates. And so people started moving their money out of banks, savings banks, and into money market funds. And all of a sudden, as the baby boom generation was about to buy a house, the money for mortgages dried up in the U.S. market. So Fannie Mae and Freddie Mac in 1970 were charged with syndicating mortgages as a way of generating capital for banks and for mortgages. And when they looked at the mortgage market, it was a mess because every contract was different. And so the first thing they did was standardize all of the mortgage contracts in the U.S. And so today, if you buy a house, you're still using Fannie Mae or Freddie Mac contracts at its core. And so they were able to standardize the mortgage and in fact, if you go back in the statistics, there was no mortgage interest rate that's in The New York Times every week until the mortgages were standardized. And so that only dates to the early 1970s, there was no interest rate, standard interest rate before that on mortgages. But that was a public sector approach.