Episode 971: The Hospital Cost Crisis

Summary

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Newt’s World – Episode 971: The Hospital Cost Crisis

Date: April 25, 2026
Host: Newt Gingrich (Gingrich 360)
Guest: Brian Blaize (President, Paragon Health Institute)
Theme: How Government Policies Drive Hospital Consolidation, Undermine Competition, and Fuel Soaring Health Care Prices

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Episode Overview

In this sharply focused episode, Newt Gingrich engages healthcare policy expert Brian Blaize to unpack the newly published Paragon Health Institute report: The Hospital Cost Crisis: How Government Policies Drive Consolidation, Undermine Competition and Fuel Soaring Prices. The conversation explores why hospital costs have become the central driver of America’s healthcare cost explosion, how government interventions have unwittingly incentivized inefficiency and consolidation, and what policy reforms are needed to restore competition and transparency in the hospital sector.

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Key Discussion Points and Insights

1. The Real Culprit: Hospitals as the Main Driver of Healthcare Costs

• Visibility of costs:
  • Drug prices draw public ire because consumers see them directly; hospital costs are mostly hidden in insurance premiums.
  • Blaize: "Hospital price increases are at the top of the figure. Hospital prices have increased three times faster than inflation and more than twice as fast as worker wages since 2000." (04:34)
  • Hospitals now represent a third of national health expenditures—outstripping even the economy of Spain.
• Impact on the middle class:
  • Rising hospital prices are cited as the number one threat to middle class families—ultimately paid through higher premiums and suppressed wages.

2. The Role of Lobbying and Political Influence

• Massive lobbying budgets:
  • Hospitals spent over $115 million on federal lobbying in 2025, a 70% rise since 2000 (10:49), not counting extensive efforts at the state level.
  • Gingrich: "They're taking the taxpayer money to hire the lobbyist to get more money out of the taxpayer." (10:49)
• Tax-exempt status and limited charitable care:
  • Most hospitals are tax-exempt but provide less charitable care than expected.

3. How Government Policy Drives Higher Costs and Consolidation

• Cost-based reimbursement legacy:
  • Medicare’s original payment model (since 1965) was “cost-plus”—incentivizing hospitals to raise costs, knowing they'd be reimbursed.
  • Administrative bloat is rampant—more money goes to paperwork and middle management than direct patient care.
  • Blaize: "If we have any industry where the payment structure is cost-based reimbursement, that leads to incentives for higher costs and particularly higher administrative bloat." (07:46)
• Lack of market competition:
  • Unlike private markets, hospital markets are “extremely distorted.”
  • Hospitals are paid far more for delivering identical services than physician offices.

4. Barriers to Competition

• Hospitals block physician-owned competitors:
  • The Affordable Care Act (2010) contained provisions targeting physician-owned hospitals, severely restricting their growth.
  • Certificate of Need (CON) laws:
    • In many states, existing hospitals can block new or expanding competitors through regulatory boards, entrenching local monopolies.
  • Gingrich (Analogy): "It would be as though…Walmart had to go to a board dominated by Sears Roebuck to get permission to open a store." (15:00)
• Result:
  • Persistent high prices, fewer choices, declining service quality—rooted in deliberate restriction of marketplace competition.

5. Medicare’s Outsized Influence on Pricing and Practice

• Medicare as price setter:
  • Medicare’s payment structures don’t reflect economic value, but bureaucratic cost estimates; private insurers often peg their rates to Medicare’s.
  • Result: Political lobbying and power, not market discipline, resolve “what gets paid for and how much.”
• Blaize: "We have a market that is extremely distorted by government policies that protect incumbents from competition..." (09:58)

6. Medicaid, State Politics, and Spending Incentives

• States exploit federal reimbursements:
  • Particularly in New York and California, Medicaid has ballooned through expanded eligibility, including to ineligible and unauthorized populations.
  • States use accounting tactics (e.g., provider taxes) to maximize federal reimbursement with little real cost.
  • Blaize: "Medicaid is supposed to be a welfare program…by viewing it as a jobs program...there’s so much corruption and fraud.” (22:53)
• Obamacare expansion distortion:
  • For each state dollar spent on an “Obamacare” adult, states get $9 federal dollars—contrast to $1.30 for traditional groups.
  • Blaize: “I think that's a moral outrage.” (25:20)

7. Lack of Transparency and Calls for Reform

• Opaque pricing:
  • Unlike other sectors, hospital prices are hidden from both patients and employers.
  • Efforts toward price transparency, started under the Trump administration, are viewed as crucial reforms.
  • Public shaming and innovation:
    • Publishing “absurd" hospital bills could pressure providers to curb prices.
• Dr. Mehmet Oz as CMS Administrator:
  • Praised for pushing transparency and Medicare reform.
  • Blaize: "Dr. Oz is hands down the best CMS administrator the country has ever had." (21:56)

8. Future Scenarios—Unchecked, or Reformed

• If current trends persist:
  • Further consolidation, monopolies, physicians absorbed by mega-hospital systems—“too big to fail.”
  • Growing calls for single-payer (government-run) healthcare—seen as top-down solutions to problems caused by previous top-down policies.
  • Blaize: "You're just going to have everything getting bigger and bigger…these giant hospital systems that are…so inefficient…continual bailouts…" (29:08)

9. Artificial Intelligence’s Potential Impact

• Gingrich’s optimism:
  • AI promises to slash administrative bloat, streamline recordkeeping, improve diagnoses, and drive down costs.
  • Blaize: "I share your optimism that AI can significantly improve healthcare in the country. I think it could reduce a lot of these administrative expenses." (32:20)

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Notable Quotes

• Brian Blaize on hospital pricing:

  "Hospital prices have increased three times faster than inflation and more than twice as fast as worker wages since 2000." (04:34)

• Newt Gingrich on lobbying:

  "Hospitals taking money that we pay either through insurance or as taxpayers through Medicare and Medicaid, and then they're taking $115 million of that money and using it to hire lobbyists to convince us to give them more money." (05:33)

• Brian Blaize on policy distortions:

  "We have a market that is extremely distorted by government policies that protect incumbents from competition." (09:58)

• Gingrich’s analogy to retail:

  "It would be as though…Walmart had to go to a board dominated by Sears Roebuck to get permission to open a store." (15:00)

• Blaize on Medicaid expansion:

  "For a dollar of spending on an Obamacare expansion adult, the federal government sends the state $9. I think that’s a moral outrage." (25:20)

• Blaize on the future:

  "You're just going to have further consolidation and monopolies...giant hospital systems that are then too big to fail and where they are so protected by government and so inefficient..." (29:08)

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Segment Timestamps

• [00:38] – Newt: The impact of AI on business & government; Introduction of guest and topic
• [04:13] – Blaize: Hospital costs vs. drug costs, wage growth, and inflation
• [05:33] – Gingrich: Scope of hospital spending, lobbying budgets
• [07:29] – Blaize: Medicare’s cost-based legacy and resulting incentives
• [09:00] – Gingrich/Blaize: Comparison with defense spending, cost-plus contracts
• [10:49] – Gingrich: Hospital lobbying increases, taxpayer money
• [13:06] – Blaize: Policy blocks to competition—physician-owned hospital restrictions and CON laws
• [15:00] – Gingrich: Competition analogy to retail sector
• [17:21] – Blaize: Medicare as price-setter and its ripple effects
• [19:59] – Blaize: Price transparency, reforms, and the CMS (Dr. Mehmet Oz)
• [22:53] – Blaize: New York and California Medicaid overspending, job programs, and federal match
• [25:20] – Blaize: Obamacare expansion incentives and distortions
• [26:59] – Blaize: Medicaid as an economic stimulus for states, provider tax schemes
• [29:08] – Blaize: Future outcomes—consolidation, inefficiency, pressure for single payer
• [32:20] – Blaize: AI’s potential to revolutionize healthcare and lower costs

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Tone & Language

Throughout the episode, Gingrich and Blaize blend policy wonkishness with pointed critiques. Their language is often direct and urgent, with Gingrich deploying memorable analogies and Blaize grounding claims in empirical analysis and historical policy context. Both share a clear skepticism of current government interventions, a belief in free-market competition, and optimism about technology’s role—especially AI—in overhauling the system.

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For further reading:
You can read the full Paragon Health Institute report, The Hospital Cost Crisis: How Government Policies Drive Consolidation, Undermine Competition and Fuel Soaring Prices, at paragoninstitute.org.

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Transcript

[Newt Gingrich]

This is an iHeart podcast.

[Brian Blaize]

Guaranteed Human Amazon Health AI presents painful thoughts.

[Amazon Health AI]

Why did I search the Internet for answers to my cold sore problem? Now I'm stuck down a rabbit hole filled with images of alarmingly graphic sores in various stages of ooze. I can clear my search history, but I can never unsee that.

[Brian Blaize]

Don't go down the rabbit hole. Amazon Health AI gets you the right care fast. Healthcare just got less painful.

[Newt Gingrich]

Welcome to Newts World podcast on the iHeart podcast network. You know, there are a lot of different things happening with artificial intelligence. Some of them are positive, some of them are negative, and some of them are just plain confusing. For example, Meta is going to cut its staff by 10% while it's pouring billions into artificial intelligence. They're cutting about 8,000 employees and not filling another 6,000 open roles because they think artificial intelligence is going to be that much more effective, or if they actually thought these were not necessary. Or alternatively, they need the money they're talking about. According to Zuckerberg, they May put between 115 and 135 billion dollars this year alone on artificial intelligence. Last year they put in about 72 billion. So what you're seeing with these really big companies is huge investments, and that's frankly, I think, making them tighten the belt in other areas just to try to find the cash. In addition, I've been talking to folks who tell me that if you get a small number of engineers who really understand how to work with AI, they may be more effective than 20 times that number who don't know how to work with AI. So you may be seeing some really big changes coming down the road. Now, parallel to that outside the United States, the President of the United Arab Emirates has launched a totally new government model. Their goal within two years is to have 50% of government sectors, services and operations running on Agentic AI. That'll make the UAE government the first government in the world to operate at this scale through autonomous systems. Now, we have no idea. We should all keep an eye on it because we don't know what the impact of that will be. It could be a total mess. They may have jumped too soon and the technology may not quite be ready, or it could have a dramatic impact on actually reaching out and changing things in very positive ways. I recently had a chance to spend two days going through briefings on artificial intelligence and health care, and I have to tell you, it is staggering how rapidly the changes are coming, how powerful they are and how different they're going to be. So artificial Intelligence is not something that we're going to be able just to hide from. It's something we're going to have to pay attention to now. Coming up, I'll talk with Brian Blaise, president of the Paragon Health Institute, on their new report, the Hospital Cost Crisis. How Government Policies Drive Consolidation, Undermine Competition and Fuel Soaring Prices. That's next. I am really pleased to welcome my guest, Brian Blaize, president of the Paragon Health Institute. Paragon's new report, the Hospital Cost How Government Policies Drive Consolidation, Undermine Competition and Fuel Soaring Prices, is available now. You know, when people talk about rising health care cost, they usually blame the insurance companies or the drug companies. But Brian, your report says hospitals are actually the biggest driver. What are most people missing here?

[Brian Blaize]

I think when people talk about drug prices, they're very visible. They go to the pharmacy counter, could be several times a month, and they see the actual prices and they have to pay a share of that. The hospital price is hidden for most consumers. It's mostly picked up by just high and rising health insurance premiums. But as a component of total health care spending, hospital services are much higher than any other component. And what we have done is sort of look at the price changes throughout the entire economy since 2000, and hospital price increases are at the top of the figure. Hospital prices have increased three times faster than inflation and more than twice as fast as worker wages since 2000. So there's no other sector of the economy that's experienced the type of price growth as we have in hospitals, and they've grown much more than other medical services. So that cost is being borne by workers in the form of higher premiums, which means lower wages. In my view, high and rising hospital prices are the number one threat to middle class families in this country.

[Newt Gingrich]

Well, as you point out, and it's really stunning, we spend about a trillion $600 billion a year on hospital care, which is more than the entire economy of the country of Spain. I think people don't realize how big the hospital systems are. And you point out that the hospitals account for about one third of the national health expenditures. Part of that, and this is what people need to really understand part of that, is that there's a lobbying budget that exceeded $115 million in 2025. So if you think about it, the hospital's taking money that we pay either through insurance or as taxpayers through Medicare and Medicaid, and then they're taking 115 million of that money and using it to hire lobbyists to convince us to give Them more money. I mean, isn't this a big part of why it's so hard to reform the system?

[Brian Blaize]

Yeah, I mean, hospitals are increasingly dependent on government programs, and that's just the lobbying at the federal level, Mr. Speaker. I mean, there is massive hospital lobbying at the state level as well. And what that lobbying does is perpetuate an inefficient status quo. So you've got several big problems where policy protects hospitals from competition, where policy incentivizes consolidation with hospitals merging and also hospitals taking over physician practices and then a system of subsidies that are targeted towards hospital costs. And if you're subsidizing costs, what you should not expect is efficient delivery of services.

[Newt Gingrich]

Why is subsidizing cost a bad idea? And how would you pay for it?

[Brian Blaize]

And we really focus a lot on the government programs as responsible for the hospital cost crisis. So let's just start with Medicare. Medicare took effect in 1965. The way that Medicare reimbursed hospitals was costs. So hospitals would just send the bill to Medicare and the Medicare program would reimburse it. For the first two decades of the Medicare program, annual cost increases, spending increases on hospitals averaged 23% increase. So the problem got really severe that the Reagan administration needed to implement reforms which were really important in the early 1980s to bring the cost growth crisis under control. But the legacy of the Medicare program is reimbursing hospitals for their costs. If we have any industry where the payment structure is cost based reimbursement, that leads to incentives for higher costs and particularly higher administrative bloat. And so we've seen a tremendous amount of that in the hospital sector, where so much of the spending that Americans spend on hospitals doesn't go to direct patient care, but rather goes to administration and bloat.

[Newt Gingrich]

In fact, hospitals are being told you don't have to worry about keeping your costs down because the government's just going to pay whatever you send in. Which, by the way, also happens with some of the defense contractors. So it's easier to accept the cost increase and then ship the bill to the government than it is to try to actually manage the system to keep the cost down. I mean, is that a fair summary?

[Brian Blaize]

Yeah, that's the history of hospital reimbursement. Now, Congress has intervened at various times, but the legacy of hospitals reimbursed based on costs persists in the modern Medicare payment structure. So it is still the case that when hospitals costs increase, government programs pay them more.

[Newt Gingrich]

I mean, isn't that fairly unusual? Certainly in the private sector, you would not have a cost plus kind of contract that's just open ended.

[Brian Blaize]

If that's how we reimbursed airlines, if we reimbursed airlines based on their costs, and we protected airlines from competition, which is another part of government policy towards hospitals, what would we expect to happen with airlines? You would get higher airline prices and you'd get lower quality of care. We don't have a normal market for health care and particularly for hospital based care. We have a market that is extremely distorted by government policies that protect incumbents from competition, that pay hospitals much more for the same service if it's delivered. They pay much more for the same service if it's delivered in a hospital than in a physician office. And with these inefficient subsidies. So we've just gotten rising and escalating costs and prices.

[Newt Gingrich]

And you make the point that what hospitals have done to protect themselves, that from 2000 through 2020, they increased their spending on federal lobbying alone by 70% in real inflation adjusted dollars. And then in 2025, the first three quarters, they jumped 20% again. Isn't that an amazing amount of money to be spent trying to get the taxpayer to give you the money? So they're taking the taxpayer money to hire the lobbyist to get more money out of the taxpayer.

[Brian Blaize]

And most of the hospitals are tax exempt, so they have a massive advantage. And there's concerns with that. They're supposed to provide a amount of charitable care in order to justify the tax exemption. And most nonprofits don't provide that much charitable care. And then it's a circular loop where they're getting taxpayer money and using the taxpayer money to finance for additional subsidies and additional protection from competition. You saw the huge increase in lobbying last year because of their opposition to some reforms that were considered in the reconciliation bill. And the one big beautiful bill. Congress, to their credit, did take some actions to reduce distortions on the Medicaid financing side. I briefed several senators last summer on the issue and one of them astutely said the hospitals just want a piggy bank from the US treasury and we need to stop the direct flow of so much taxpayer money into hospital coffers. So there were some important reforms that Republicans to their credit passed in the reconciliation bill to limit some of this corporate welfare through the Medicaid program.

[Newt Gingrich]

When we come back, Brian will describe what is driving the hospital cost crisis. When you look at all this, there's also an effort by the hospitals to eliminate competition. I know one of the zones that's been very Controversial is doctors opening up their own hospitals to compete head on with the traditional hospital. And the hostility against that is pretty amazing.

[Brian Blaize]

Yeah, so these are called physician owned hospitals and they were emerging has significant competition to traditional hospitals. And in the Affordable care Act in 2010 they were trying to get, you know, the hospital association to endorse and put their political muscle behind Obamacare. The drafters included a provision that restricted Medicare reimbursement for new physician don't hospitals. And Medicare is such a dominant player and payer in the health care market, if Congress is going to come in and limit Medicare payment, that's going to stop the growth of physician owned hospitals. And that's exactly what it did. And there were other provisions in the Affordable Care act that reduce competition. But this is one of the most significant and that policy remains in effect today where there basically haven't been any new physician owned hospitals after Obamacare was passed in 2010 because they're not able to build a Medicare program. There's also another really anti competitive policy. It's probably the most anti competitive policy that exists in the country. It's called certificate of need laws that they're enacted by states and what they do is effectively provide incumbent hospitals with veto power over new hospitals or new supply coming in. In order for a new hospital or an existing hospital or facility to expand supply, they need to fill out an application and appeal to this board in order to get approval to do that. And the board is often dominated by the incumbent providers and the incumbent hospitals. So we have given incumbent hospitals veto power in many states, in most states over new competition coming into the market.

[Newt Gingrich]

To take a private sector example, it would be as though back when they were getting started, Walmart had to go to a board dominated by Sears Roebuck to get permission to open a store. And of course Sears Roebuck would do everything it could to stop them from opening a store. In which case today you wouldn't have very much Walmart and you still love Sears Robuck, but it would all cost a whole lot more. You know, Adam Smith warns in the wealth of nations that anytime businessmen get together for lunch, it's a conspiracy against the consumer. Isn't that what this whole hospital fight against? The doctor owned hospital is exactly what that is. They are deliberately limiting the choice of citizens and raising the price and making it virtually impossible to look for a competitive version.

[Brian Blaize]

I mean that's exactly what it is. And what we know from the history of economics is that the best way to protect the consumer is competition in the market among Producers, that's the best way to protect the consumer, both in limiting prices and in many areas of the economy where there is robust competition, you see real prices declining. It's also necessary to protect the consumer for the quality of services. So if you limit competition, if you only give Americans choices in most markets of one or two big hospital systems, the natural result that we should expect is rising prices for quality of care. That's getting worse. And that's what we've seen. And unfortunately, it's the government that has the monopoly power here. They're the ones that are excluding competitive forces from disrupting the traditional model.

[Newt Gingrich]

You actually have government, which is the largest single purchaser of health care, adopting rules to guarantee that government will have to pay more for the health care it's buying. If you think about this, it's kind

[Brian Blaize]

of nutty, is very perverse.

[Newt Gingrich]

One of the points you make, which is really important is Medicare isn't just Medicare. Medicare sets up a whole structure of payments that affects across the whole system. Can you explain why Medicare is so central to the process?

[Brian Blaize]

Yeah. So Medicare, in order for products to get reimbursed, the innovator will have to go to the Centers for Medicare and Medicaid services and basically make the case to the bureaucracy that that product should be reimbursed by the Medicare program. And what Medicare does is it largely sets price controls. So it sets what we pay hospitals for the procedures that they perform. It sets what we pay doctors for the services that they provide so you don't have a market mess. And historically, and the way that a lot of these payments are made is based on costs. It's not based on like economic value and comparison to alternatives. It's based on costs. So they have to file these cost reports to the Medicare program that the bureaucrats sort through. And then there's this massive lobbying infrastructure because if CMS controls which products get reimbursed and the price points, that means we're allocating so much of our healthcare resources based on political power, not on the ability to best serve patients. So that's what we have with Medicare. And then one of the things that we have seen, which I think is unfortunate, but it is a reality, is if commercial payers often link their payments to what the Medicare program does, so that amplifies Medicare's the power that it has over determining how healthcare resources are allocated. And what we need to try to do, and we make this recommendation in the paper, is reverse that process. So the Medicare program should be learning from the private sector. So that the private sector is determining, like how you evaluate these services relative to each other. And we incorporate pricing in Medicare from where the private sector has innovated in terms of pricing. But unfortunately, the direction mostly goes in the other way, where the private sector is just linking the relative payment rates to Medicare.

[Newt Gingrich]

Coming up, we'll discuss the importance of transparency in health care and solutions next. When you look at that, what's your sense about the relative importance of transparency?

[Brian Blaize]

It's a great question. So you realize that we have a unusual market because in almost every other sector of the economy, the suppliers compete on prices. They advertise the prices that they have. And in this world, the prices are hidden. They're hidden from patients when they use the care. They're also hidden from American employers that are financing so much of the health care. Half of Americans get their health insurance through the workplace. I think what price transparency can do is help the consumers that increasingly are in high deductible health plans and are sensitive to price differences. So it's going to help consumers shop. And I also think it will help employers, one, monitor the insurance company that they've contracted with to see what rates they're getting, but also pursue more innovative models, models that align patients with cost consciousness. And there are ways that we can reform health insurance design so that people care about what the prices are. I also think there's an element in just shaming some particularly high priced hospitals. Some of these hospital bills that are out there are so absurd. I mean, they're really nefarious. And I think we need to have more public shaming where these hospital prices are particularly appalling. But the Trump administration, as you know, Mr. Speaker, I know you're a big supporter of the price transparency efforts in term one, required hospitals and health insurance companies to make price information publicly available. Those regulations really did get stalled out, but the Biden administration, they just didn't prioritize. It is a big priority of the second Trump administration to get these prices out there in the public.

[Newt Gingrich]

I get the impression that Dr. Mehmet Oz, the administrator for Medicare and Medicaid, really gets this and is really pushing pretty darn hard. Do you have the same feeling?

[Brian Blaize]

Yeah, I think Dr. Oz is hands down the best CMS administrator that the country has ever had. He is really focused on improving these programs, trying to correct all these bad incentives within these programs. And I think he's very committed to the price transparency efforts. And really, I think the whole administration is committed from the secretary on down.

[Newt Gingrich]

You also end up with These really strange pricing things. You point out New York's Medicare spending is 85% higher than the national average and that their Medicaid spending is about $4,800 per person, which is much higher than the national average. In fact, New York is 23% higher than the next highest state. What is there about New York that makes it so expensive?

[Brian Blaize]

Just to correct one thing, that's all Medicaid. So their Medicaid spending is 80% higher. So I really put New York and California has the epitomes of problems with the Medicaid program. 40% of New Yorkers and California residents are enrolled in the Medicaid program. Now Medicaid, it's a welfare program. It's supposed to be for the most vulnerable. But those states have so expanded eligibility, they've opened the programs up to unauthorized immigrants and they don't carefully check eligibility. So you have a massive problem of eligibility that there's far too many people enrolled in those programs. New York has turned Medicaid into a jobs program. So the biggest source of job growth in New York is paying household members and family members to provide Medicaid services for other members of their household. There's a massive increase in like personal care services and home health aides in New York. Medicaid is supposed to be a welfare program to finance health care long term care services for the most vulnerable by viewing it as a jobs program. The politics of that. In states like New York, they're trying to unionize and the SEIU is trying to unionize all of these increased home health aides. There's so much corruption and frustration, fraud because of the growth of these programs. One other thing about Medicaid that is really important for all the listeners to understand. The federal government underwrites it. So states have basically an open ended check. The more that they spend on Medicaid, the more that the federal government sends those states. So it's mostly federal taxpayers that are financing all of these abuses and excesses. In states like New York and California,

[Newt Gingrich]

what you have is a couple of very big states with very big unions and very left wing ideas being subsidized by all the rest of us.

[Brian Blaize]

That's exactly the case. So conservative states tend to have much more efficient Medicaid programs than the big blue states. And so you've got a tremendous transfer of resources from redder states to bluer states.

[Newt Gingrich]

And so in effect, the more you're willing to spend right now, the more the US taxpayer is willing to send you, which then gives you an Incentive to spend even more.

[Brian Blaize]

It's really important to recognize the problem of Obamacare here too, because Obamacare added a new category of Medicaid enrollees, these able bodied working age adults. And the federal government spends so much more on those enrollees. So right now the average state spends a dollar on a traditional Medicaid enrollee, which is a child on the program, a person with disabilities on the program, a senior on the program. If they spend a dollar, the federal government will send $1.30 to the state. When states spend a dollar of their own resources on an Obamacare enrollee, the federal government sends the state $9. So the federal government is sending states seven times more funding for a dollar of spending on an Obamacare able bodied expansion adult than a traditional Medicaid enrollee. I think that's a moral outrage. Like the federal government should not be incentivizing states to provide more care for able bodied working age adults than for people with disabilities and children. It's a massive distortion. It causes tremendous waste. Give states incentives to classify people incorrectly. Unfortunately, that distortion remains in place, but in my view, it's the biggest distortion that exists right now in the Medicaid program.

[Newt Gingrich]

Why do you think states like California and New York, which already have huge deficits, why would they go to this kind of almost grotesque overspending? What's the underlying driving force?

[Brian Blaize]

So states view Medicaid increasingly as like an economic stimulus program. And it is because the federal government has that open ended matching grant structure. The federal government also permits states to engage in financing schemes. That means states don't really have to spend money in order to maximize federal receipts. And what you have is in many of these states, the hospital systems, which are politically powerful, will go to the state and say, let's cook up a scheme where we have the appearance of an actual state expenditure. And the classic example, which I know you're familiar with, is the provider tax where a hospital will say, well state, why don't you tax us a million dollars? And then the state spends that million dollars back on the hospital system. That's just the accounting gimmick. But then the state will invoice the federal government for that million dollar expenditure. So the average State gets a 70% reimbursement, which means that million dollar accounting gimmick nets the state $700,000 that they then spend on that hospital system. And you've got these very politically powerful hospital systems and hospitals. My understanding is that they actually have more political power in state capitals than they do in Washington. And they have a lot of power in Washington. So they just collude in ways that direct all of this additional federal money into the state. The Medicaid match distorts state incentives when they get so much federal money when they spend a dollar on Medicaid. Right. They don't get federal money when they spend a dollar in other ways. So you've got distortions that incentivize Medicaid to grow relative to other public priorities.

[Newt Gingrich]

You have done a great job and I think that what you all are doing is very, very important. Brian and the paragon is doing extraordinarily important work. If nothing changes, if we can't beat the lobbyist, what do you think the hospital system looks like in 10 or 20 years?

[Brian Blaize]

I mean, you're just going to have further consolidation and monopolies. So if you look at independent physicians, physicians didn't used to be employed by large hospital systems. Now most physicians are employed by hospital systems. So you're just going to have everything getting bigger and bigger. These giant hospital systems that are then like too big to fail and where they are so protected by government and so inefficient that you just have this situation where they're going to need continual bailouts and where we've so suppressed competition and normal market forces that it's hard to undo the sort of giant mess that's been made. And then you'll have more pressure for single payer health care because the left will come and say, well, there's no way out of this. We need to have single payer health care. And that is just another top down solution that doesn't recognize that it's all of these government payment programs and regulations that have caused the underlying problem.

[Newt Gingrich]

It's been very frustrating to me because I've now spent about a quarter century trying to unlock this. And the power of the big systems and the power of their lobbyists has been very, very formidable.

[Brian Blaize]

You did some incredible things as Speaker. You enacted Medicare reforms in the mid-1990s. So those were really. And you tried very hard to get Medicaid block grants through as well. So unfortunately, you know, President Clinton opposed those efforts.

[Newt Gingrich]

Actually, New Jersey, on a bipartisan basis blocked us on the Medicaid. On the Medicare, I should just say in passing. We spent over a year. We designed Medicare Advantage with AARP. When the crunch came in the summer of 96, which was a presidential election, the Clinton administration wanted to oppose us. And I called the head of aarp, who's actually on Ragbrai, which is a bicycle process in Iowa. And I got him on his bicycle and he said, you know, you guys have been honest with us and you've worked with us, and we're sticking with you. You can tell the White House that we are going to endorse this. We are not going to back off. That was really the key because if AARP had come out and said it was terrible, we couldn't have passed it. But we literally created Medicare Advantage that summer. And as you point out, we just couldn't carry it over to Medicaid, although we did pass welfare reform. And that had a huge indirect impact. I personally believe that we're on the edge of a gigantic revolution with artificial intelligence at almost every level, from finding new drugs to communicating your medical records, to cutting through the administrative cost, to providing expert systems that you can interact with to learn things that today you would have a very hard time learning. What's your sense as you look at all that? How big an impact do you think artificial intelligence will have on healthcare?

[Brian Blaize]

It's a really important question. We actually have launched an initiative last year at Paragon on health care, artificial intelligence. And I share your optimism that AI can significantly improve healthcare in the country. I think it could reduce a lot of these administrative expenses. I think it could help doctors in reducing the amount of paperwork that they have to deal with. And I also think it's important tool for improving diagnoses. I mean, you could upload images, patient histories, and get artificial intelligence to provide a perspective that's informed by big data. So I think that artificial intelligence has a really important role to play in improving the quality of healthcare, improving diagnoses, in putting downward pressure on costs. I am concerned about efforts from the government, mostly at the state level right now, to restrict AI prematurely.

[Newt Gingrich]

I want to thank you for joining me. I think the Paragon Institute does great work. Your new report, the Hospital Cost How Government Policies Drive Consolidation, Undermine Competition and Fuel Soaring Prices is available on the Paragon Health institute [e-mail] and it's a major contribution to how we're going to ultimately fix the health system. So thank you so much for joining us.

[Brian Blaize]

Thank you, Mr. Speaker. It is always a privilege and honor to be with you.

[Newt Gingrich]

And now I'm pleased to introduce a new segment to Newt's World where I answer listeners questions. To ask a question, please email me at newtingers360.com Inner Circle member Michael Zia asks a second existential story that is not known to the public is the Broken Health and Wellness System. Have you heard of anyone using AI to improve population health? It's a great question, Michael. And I can tell you I work very closely with a firm called the Chicago Pacific Founders. We have about 35 companies that are working to develop artificial intelligence and use it specifically to improve health. And I think you're going to see in the next few years an enormous revolution in our ability to really improve health, to track health, and to get people the right information at the right time. I look forward to hearing from you. To ask a question, please email me at newtinglish360.com thank you to my guest, Brian Blaize. Newt's World is produced by Gingrich 360 and iHeartMedia. Our executive producer is Garnzi Sloan. Our researchers, Rachel Peterson. Special thanks to the team at Gingrich360. If you've been enjoying Newts World, I hope you'll go to Apple Podcast and both rate us with five stars and give us a review so others can learn what it's all about. Join me on [e-mail] I'm Newt Gingrich. This is Newt World. This is an iHeart podcast. Guaranteed Human.