By Stuart Z. Goldstein, Former Managing Director, Corporate Communications & Public Affairs, DTCC
LinkedIn: Stuart Z. Goldstein
The U.S. healthcare system is structurally broken. Despite years of well-intentioned pilots and incremental fixes across Medicaid, Medicare, commercial insurance rates and legacy computers, the problems grow larger.
According to Reuters, recent data shows U.S. healthcare spending reaching a staggering $5.3 trillion annually; roughly 18% of GDP (gross domestic product) and still growing exponentially. The U.S. spends far more than other developed countries, which are typically closer to 10–12% of their GDP.
Another way to look at the issue is that the year-to-year growth rate of healthcare costs have surpassed our GDP growth by 34%, which represents at this juncture a drag on our overall economy. Employer sponsored premiums have skyrocketed 55% over the last 10 years, according to Mercer, a leading advisor to large employers.
The health industry’s efforts to layer new solutions onto aging infrastructure, producing fragmented, duplicative, and costly systems rather than replacing them with something fundamentally different is not the answer.
Lessons from Wall Street’s “Paperwork Crisis”
But there is nothing inevitable about this inefficiency. Other industries have confronted similar structural challenges and emerged stronger.
In the mid-1970s, the New York Stock Exchange (NYSE) faced a literal mountain of paperwork. Back-office staff could not reconcile millions of physical stock certificates and paper trade confirmations fast enough. Errors multiplied, and the exchange was forced to close every Wednesday just to catch up on a daily trading volume of 15 million shares.
In response, the major financial services companies created a national clearing and settlement utility: The Depository Trust & Clearing Corporation (DTCC). By standardizing transaction formats, automating data matching, establishing one uniform technology platform and centralizing payment, the DTCC transformed the industry. Today, U.S. equity markets trade 2.3 billion shares daily. Across asset classes (equities, corporate bonds, government securities, etc.) more than $6-7 trillion in securities transactions are processed daily, with payment completed the next-day. DTCC is the most efficient, lowest-cost post-trade infrastructure in the world.
Why America needs a Health Care Clearing Corporation (HCCC)
Similarly, the fastest and least controversial path to reducing national healthcare costs remains modernizing the fragmented, antiquated technology and payment infrastructure that sits between health insurers and hospital/medical service providers.
Currently, administrative expenses account for roughly 15% of total healthcare spending, totaling nearly $750 billion a year. One major hospital CFO estimates the industry supports nearly 125,000 separate technology connections between insurance carriers, hospitals and third party service organization. Testimony before Congress suggested if the industry replaced this patch-quilt of technology with a single, centralized, standardized technology pipeline, the industry could save $300 billion dollars.
Other inefficiencies are glaring:
- Manual Processing: Approximately 35% of insurance carrier payments, to hospitals and physicians alike, still arrive via paper checks.
- Delayed Settlement: While other sectors of the economy settle transactions in seconds, healthcare claims can languish for 45, 60, or even 90 days before adjudication and payment. This robs hospitals and doctors of critical cash flow as a business.
- Redundancy Costs: There are currently no reliable industry figures on whether there is adequate spending on IT redundancy and data backup centers. Why? Because the separate computer connections makes achieving robust resiliency almost cost prohibitive.
The current system isn’t just expensive; it is not secure. The 2024 cyberattack on Change Healthcare, exposed the personal data of over 190 million people, and underscored the systemic risk of our fragmented architecture. Under current circumstances, the cost to ensure “safety and soundness” across so many disparate nodes is cost prohibitive.
The Case for Restructuring
The healthcare industry is currently where the financial markets were in 1970. We have thousands of participants, insurers, hospitals, physician practices, and billing firms, operating on incompatible systems with no universal standards for claims or eligibility.
Looking at the industry from the outside, you have to wonder if there’s any incentive to change? For example, health insurers have argued against standardizing the payment of claims and for the thousands of claims adjusters used to ferret out fraud. But like the 80-20 rule, are we chasing after something that has diminishing returns when comparing the outsized cost of large physical health processing centers. How much more could the industry benefit financially, if claims could be handled by industry agreed upon standards and seamless processing by computers without human review. HFMA has been leading a study to achieve this goal.
Both the claims review process and the delay of payment on claims have been used strategically for decades to create a “float” from insurance premiums to buttress the balance sheet. In 2024, the top 9 health insurance carriers made $70 billion in net profit, of which $14 billion (20%) was attributed to the “float”.
A Path Forward
The clearing corporation’s success in financial services is attributable to it being industry led, and governed. Congress and regulators can establish a framework and oversight, but structure and governance must be addressed by those closest to where the rubber meets the road.
Modernizing our healthcare technology infrastructure does not require ideological alignment. Every stakeholder, from the CEO of a Fortune 500 company who subsidizes employee health insurance; to the multi-state health system; to the independent physician; and the patient, all benefit from faster payments and lower overhead.
Technology is no longer the obstacle. What is needed now is unified industry coordination, and Vision.