Wednesday, June 13, 2007

McKinsey on health care payment reform

A recent edition of the McKinsey Quarterly discusses payment reform, and the abstract of that discussion is as follows:

  • The hugely inefficient US health care payment system is ripe for transformation.
  • The inefficiency is concentrated in the $250 billion that consumers pay doctors and hospitals and the $1.3 trillion that insurers send to these providers. The heart of the problem is a mix of high transaction-processing costs and the lack of an efficient way to make consumer-to-provider payments.
  • Over the next five years, rapid innovation may lead to a restructuring of the value chain of health care payments and to a shift in the sector’s balance of power. Financial institutions have an opportunity to take on a more prominent role, while payers risk losing influence to new entrants. Providers stand to benefit as fewer dollars are wasted on transaction-processing inefficiencies.

The system has certainly been ripe for transformation for a while...the basis for high transaction processing costs lies at least partly in conflicting incentives of payers and providers that exist...for example, payers may stall payment as long as possible...

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