Healthcare Incentives

Charlie spitting the truth – Source

I recently listened to Village Global’s podcast about the intersection of blockchain and healthcare (link) and it really piqued my interest into the healthcare industry and how misaligned incentives have given us the industry we must navigate today. What follows are key facts I summarize from the podcast as well as other additional research to paint the picture of healthcare’s status quo and how technology can enable better service for patients. As the title of this post suggests, I will primarily focus on how incentives are driving the outcomes we see today.

As Nikhil Krishnan from CB Insights put it, health insurance is one the worst subscription products out in the market today – cost keeps going up over time while there is no additional value being delivered. A lot of this has to do with the medical loss ratio, which says that health insurers must spend at least 80% of premiums on direct care for patients. The remainder is used by insurers pay for their operating expenses, with the rest kept is profit. As any for-profit company would do, insurers look at this regulatory framework and operate in a way to maximize profitability. In this case, the only way to increase their profit is to increase the $ amount of their premiums since the portion they collect is a fixed percentage.

Insurance companies are virtually assured of making money

Insurance companies makes more money when cost of care goes up. Therefore, it should be no surprise that one of their primary objectives is to do everything in their power to move the cost of healthcare upward. This is a key reason why the US spends more on healthcare that any other developed country on a per capita basis. Let’s identify the key stakeholders:

Hospital Administrators

  • Hospitals mark up the cost of services significantly; they turn around and give insurance companies fabricated “discounts”
  • Costs vary from hospital to hospital; pricing is very opaque to the end consumer, making it very difficult to price compare

Insurance Companies

  • Inflated costs translate to higher premiums


  • Patients pay increasingly higher insurance premiums
  • If a patient is uninsured, they have to pay inflated prices out of pocket
  • If a patient uses Out-of-Network care, they have to pay inflated prices out of pocket

Below is a short clip from the show Adam Ruins Everything that illustrates how patients are getting treated unfairly.

Fee-for-Service Model (FFS)

FFS is the dominant physician payment method in the US. In this model, service is unbundled and paid for separately. Physicians get paid on the number of treatments/operations they conduct rather than the quantity. As you can probably guess, this model is not in the best interests of patients.

“There is no turning back to an unsustainable system that pays for procedures rather than value. We want to look at bold measures that will fundamentally reorient how Medicare and Medicaid pay for care and create a true competitive playing field where value is rewarded handsomely.”

– Health and Human Services Secretary Alex Azar

Direct Primary Care (DPC)

DPC represents a new value-based model that rearranges the incentives associated with FFS. Patients pay a fixed fee to access primary care which incentivizes doctors to treat patients in the most efficient manner (so they won’t keep coming back to the doctor’s office). Pricing is much more transparent and administrative overhead is much less of a hassle for physicians – doctors can spend more time actually treating patients. However, challenges to the growth of this model include large employers’ unwillingness to cover their workers in this model, citing a lack of data proving the cost-efficiency.

However, startups like Decent are taking innovative approaches to expanding the DPC model while operating as an insurance company, albeit one that is structured to embrace DPC at its core.

Decent is flipping the incentives found in traditional insurance business models

Decent is focused on the growing freelancer population and is partnering with DPC providers to deliver a new kind of health insurance that includes the provider’s fixed fees in the cost of its health insurance product. It is planning to implement blockchain to facilitate an insurance coop model that rewards price discovery by incentivizing consumers to get treatment from lower cost providers as well as rewarding healthy habits. In essence, it allows for cost savings to be passed back to members and greater transparency for the consumer.

Other Potential Blockhain Use Cases

Decent’s approach to create a reward system among its consumers is just one way blockchain can be implemented. Below is a list of additional use cases:

Reducing duplicitous work
Back office solutions to reduce overhead associated with inefficient administration and claims management.

Coordinating compliance requirements
Getting a bunch of stakeholders together to meet compliance requirement (ex: pharma supply chain).

Crowdsourced medical price directory
Hospital pricing data is notoriously difficult to glean. This data could be crowdsourced in a censorship-resistant way to increase transparency for all.

Credential verification
Shared record of credentials for each physician that can be seamlessly shared with each institution that asks for it.

Giving patients control of their health data
Tracking patient consent around how their data is used for clinical trial and research purposes. Currently, data brokers pull data, de-identify, and sell this data for big profits, with consumers receiving nothing for it.

Unique patient identifiers
Patient data can get misidentified as it transfers from system to system and helping patients easily transport this data would unlock major efficiencies.
Hospitals generally don’t want this because they want to create walled gardens around their patients – their incentives are not aligned with patients.

In summary, it’s clear that incentives are out of whack in the healthcare industry. As the biggest lobbyist in the country, the industry has long-focused on keeping the status quo (while padding their pockets, of course). I am very excited about passionate entrepreneurs that are seeking to address the inefficiencies in this space, as well as the potential of nascent technologies like blockchain to deliver increased value back to consumers.

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