Irrational Healthcare Payment System Drives Costs And Why Payers Go Along With It | Robert Nelson, MD | LinkedIn

Our third-party payer system, by the nature of how coding & billing is contractually mandated, promotes increased health spending on aggregate – and the economic design of the system includes a perverse incentive to keep the spending going. 

This occurs in large part due to price insensitivity on the consumer-patient side due to the low marginal cost of entry compared to the inflated CPT billed charges which serve as a pivot point for network discounts. i.e. ~ once a co-pay is paid, patients don’t have any incentive to know or care what is done or how much it costs. 

These perverse motivations are what keeps premiums going up and up… Without utilization (claims), there is no other way to grow the pie because payers are not free to make a higher profit margin beyond the mandated cap, even if they do things to lower aggregate utilization which might lower premiums for everyone.  In other words, payers are not rewarded for efficiency, they reap financial reward to the extent that utilization, thus costs, continue to rise. 

Source: Irrational Healthcare Payment System Drives Costs And Why Payers Go Along With It | Robert Nelson, MD | LinkedIn