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Why the Health Care System Is Incapable of Reducing Its Own Costs

Dec 2019

The healthcare industry is facing potential systemic changes as the awareness of high prices compared to actual costs and lack of price transparency continues to spread among employers and consumers. The healthcare system is currently built to maximize profits, not to compete for patients on quality and price like every other business.  Medxoom helps employers and their employees shed light on healthcare price and quality before service with its proprietary Comparison Shopping technology.

From The Health Care Blog:

“The very structure of health care, as it exists today, means that no major player across the entire market is truly competing to provide the best medical care at the lowest cost. “The health care system is a machine for creating reimbursable events. This means that its systemic business aim is to maximize reimbursable events and to increase their price, that is, to maximize the energy the system can draw in from its customers.

Point 1: health care provider organizations are designed and energized to increase reimbursable events and drive up their costs.

Health insurers, on the other hand, have a somewhat more complex situation. Insurers are paid by their ability to finance these reimbursable events, spreading the risks, and keeping a percentage of the flow for administration, marketing, and profit, limited by the Affordable Care Act to 15% or 20% of the total. So the systemic business aim of a health insurance business is to get the risk right, so that the actual payout for reimbursable events comes as close as possible to the lower bound of the medical loss ratio.

Point 2: Health insurers get paid a percentage of the total cost. They have no incentive to reduce the total cost, and every incentive to increase it.”

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