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The affordability of health care is now at the forefront of political and public-policy agendas in the United States, as the presidential candidates debate how to improve access to doctors, hospitals, and medicines. A McKinsey team found huge possibilities for fixing the country’s medical-payment system, which consumes 15 percent or more of each dollar spent on health care—compared with about 2 percent in retailing.
Our exhibit shows the flow of dollars among the major players. Waste clusters in the $250 billion that consumers pay to medical providers—doctors and hospitals—and in the $1.3 trillion that insurance companies send to them. The inefficiency of payments from consumers to providers is one of the basic problems. The other is fragmented, paper-based, and manually processed transactions, which keep costs high and make it hard to bill and collect from consumers, a particularly onerous problem for physicians’ offices, where the dollar amounts for appointments are relatively small and the patients’ copayments are often hard to collect. Processing bills, claims, and payments, as well bad debts and other transactions, costs upward of $300 billion a year.
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