In June I proposed to municipalize medicine:

Consider letting government take full control of the industry, but at a municipal level. …  Some municipalities will find ways to cut overuse, and others will fail, but failures can then emulate successes. …

We could require municipalities to give universal coverage, and require national standards so businesses could avoid dealing with differing local regulations.  But we should otherwise give municipalities wide discretion on cost control measures. They could receive federal funds, but depending only on demographics, and usable for other purposes; the key is for local folks to pay for local practice variation.  Municipalities should be empowered to charge new residents higher prices, just as insurance companies now charge for pre-existing conditions.  (Perhaps the districts folks leave should pay districts they go to.) … My libertarian friends prefer this proposal to the [US] status quo.

It turns out that Spain does this, at least at the region level:

Spain’s national health care system operates on a highly decentralized basis, giving primary responsibility to the country’s 17 regions.  The Spanish Constitution guarantees all citizens the “right” to health care, … but responsibility for implementing the country’s universal system is being devolved to regional governments. The degree and speed of devolution is uneven, however, with some regions only recently achieving maximum autonomy. …

The federal government provides each region with a block grant. The money is not earmarked: the region decides how to use it.  The block grant itself is based primarily on a region’s population with some consideration given to other factors such as the population’s demographics. Regions may use their own funds to supplement federal monies. Not surprisingly, health care spending varies widely from region to region. The differences in expenditures, as well as in spending priorities, lead to considerable variance in the availability of health resources. …

Spanish patients cannot choose their physicians, either primary care or specialists…. Waiting lists vary from region to region … On average, Spaniards wait 65 days to see a specialist. … About 12 percent of the population currently has private health insurance.

Spain does pretty well with this system:

Total health spending accounted for 8.5% of GDP in Spain in 2007, below the average of 8.9% in OECD countries [and 16% in the US]. … Despite the relatively low level of health expenditure in Spain, there are more physicians per capita than in most other OECD countries.  In 2007, Spain had 3.7 practising physicians per 1,000 population.  [The US had 2.4] … In 2006, life expectancy at birth in Spain stood at 81.1 years, more than two years higher than the OECD average [ and 78.1 in the US] … The infant mortality rate in Spain … stood at 3.8 deaths per 1,000 live births in 2006, lower than the OECD average.

The same approach might well work at a smaller scale.  Many have expressed concern that regions would try to discourage sick folks from moving into their area, but I don’t think this is a problem in Spain.   Also, consider education, which is often managed and funded at a local level.  Even though citizens with kids impose much higher costs, I know of no localities that actively discourage folks with kids from moving in.  Citizens also vary greatly in how much use they make of local parks, but what localities try to discourage new park-using residents?

Added:  Paavo tells us that Finland med is even more decentralized:

The responsibility for organizing health care in Finland lies with the approximately 440 municipalities across the country. These can either provide health care services independently or join with neighbouring municipalities in joint municipal boards which maintain a joint health centre. A municipality can also buy in health care services from other municipalities, non-governmental organizations or the private sector. …

Hospital districts formed by municipalities are responsible for arranging specialized medical care. There are 21 hospital districts including Åland, and each municipality must belong to one of these. Health services are mainly funded by municipalities from tax revenue.  43 per cent of health care is funded from local tax revenue, 17 per cent from central government grants financed by national taxes and 16 per cent from health insurance revenue. The proportion of service users is 20 per cent. The central government contribution to municipal social welfare and health care expenditure is determined by the population, age structure and morbidity in the municipality plus a number of other computational factors.

The law lays down the basic nature and operating framework for the health care services, but does not concern itself with detailed questions of the scope, content or organization of services.

Fins spend 8.2% of GDP on medicine, have 3.0 docs per 1000, and expect to live 79.5 years.