Overhauling the US healthcare payment system

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A hugely inefficient payment system is ripe for transformation. The inefficiency is concentrated in the $250B that consumers pay doctors and hospitals, and the $1.3T that insurers send to these providers.

The US health care payment system, which processes $1.9 trillion a year, is ripe for transformation. The system is inefficient, consuming 15 percent or more of each dollar spent on health care, compared with about 2 percent for the payment system in retailing. Expenditures on the processing of bills, claims, and payments; bad debt; and other transactions total more than $300 billion a year. Furthermore, without new approaches to streamlining the payment system, the movement to consumer-driven health care plans will likely drive up administrative costs and further frustrate patients. If left unaddressed, excess spending may undermine the emerging consumer-centric model, which promises to rein in medical costs and help expand access to insurance coverage.

This originally appeared in McKinsey Quarterly