The reason spending money on healthcare saves money, is by insuring the uninsured, hospitals and physician would be getting paid close to 100% on their billing. Presently, (from the last figures I was given by a few surgeon) they get about 60% back. If you were only paid for 60% for the time you worked and were only reimbursed 60% for the resources you used at work you would be charging more and more as well.
The surgeon can not increase his/her fee because it is medicare/medicaid capped. It is the hospital that can increase prices for the use of the resources (the Operating room, the equipment, all of those disposable kits, the cost of the time of the salaried staff)
(I am a physician not a journalist and my numbers come from conversations with other physicians in hospitals in the New York area. They are not statistics from studies.)
Beyond that, someone needs to face the pharmaceutical companies in this debate. All other developed countries put caps on prescription medication prices. As we don't do this, pharmaceutical companies get the greatest return on their investment by charging the most to Americans specifically. (This is how you get anti-nausea medications that are a $100 a pill.)
Finally, a discussion on end of life issues has to begin. This is a subject for another diary.
So, Joe wanted an answer on how this would decrease costs. This is my basic answer.
There are other things that push costs up including medical technology, but expecting hospitals to pay for the care of the uninsured is the main problem.
Many patients end up on a merry-go-round in and out of ERs. (This is especially tragic for people with cancer or other illness that specifically can't be treated in emergency rooms.) It is expensive and substandard care and the providers know it. It would be cheaper and better for the person if they had comprehensive care and follow up care. Without it, big bills and expenses get run up that impoverish people and will never be reimbursed in Emergency rooms. Those unpaid bills turn into higher costs in the next fiscal year.