This outstanding Washington Post article (first in a series of three) on Medicare nails the key problem with reliance on third party payor health care finance systems:

In Medicare’s upside-down reimbursement system, hospitals and doctors who order unnecessary tests, provide poor care or even injure patients often receive higher payments than those who provide efficient, high-quality medicine. . .
Researchers at Dartmouth Medical School, who have been studying Medicare’s performance for three decades, estimate that as much as $1 of every $3 is wasted on unnecessary or inappropriate care. Other analysts put the figure as high as 40 percent.
Medicare has difficulty controlling waste because of deficiencies in the way it monitors and enforces quality standards. Its oversight system is fragmented, underfunded and marred by conflicts of interest, records and interviews show . . .

Read the entire article, including the sidebar containing related articles and graphs and the subsequent articles here and here. It’s a first rate series.