Kaiser, who has a plausible claim to expertise in this field, puts the overhead cost of Medicare at 2%.This is exactly what I'm talking about. I'm sure that number is accurate, if you're looking at Medicare's books. I'm telling you that when you look at the way Medicare forces the industry to handle their charges, it makes the industry much less efficient, both in terms of administering the provision of care to Medicare's "customers" as well as more generally across how the industry handles its accounting in general.
Every hospital (and skilled nursing facility) has a small team of people whose job is to compile the statistics that Medicare demands, and report it annually in what's called "The Medicare Cost Report". Add up 1 or 2 or 5 FTEs across every hospital and SNF facility in the country, Medicare's claimed efficiency is quickly turned upside down. There is some work that providers have to do for other payers, but its scale doesn't approach the order of magnitude of what Medicare forces. This isn't a matter of opinion (like my wife's); this is absolutely factual and objective.
It gets even worse than that. Because the care paid for by Medicare together with that of Medicaid (which is a separate program, but rides on Medicare's coattails for a lot of its reporting mechanics) dwarfs any private payer, hospital information systems (at least the parts that deal with finance) are structured around the way statistics need to handled for Medicare. That squeezes out the ability to do any more traditional cost accounting. This is the reason that the fee for a given service varies so wildly from hospital to hospital: because they're not doing normal cost accounting (but instead tracking Medicare statistics) the don't actually have a good idea of what any given thing costs, so their fee schedules are all over the place. (I'm generalizing here, there are hospitals that do it better, but my anecdata from hospitals we've had close association with show that this problem is quite widespread.)