A school district will spend $40,000 per teacher on healthcare this year. They have a 30% teacher vacancy rate because they can't afford competitive salaries.
A patient gets knee surgery. It costs him $3,500 out of pocket. His employer pays $18,000 total. The hospital receives $12,000.
Across the U.S., $1.5 trillion disappears annually into healthcare administrative friction—money that never touches a patient, doctor, or hospital bed.
Healthcare administrative friction refers to the billing, payment uncertainty, claims denials, and reconciliation costs that consume roughly one-third of every healthcare dollar before it reaches a patient or provider.
Why One-Third of Healthcare Spending Never Reaches Patient Care
When Nomi Health CEO Mark Newman sat down on the Relentless Health Value podcast, he traced the life of a healthcare dollar from employer payment to provider receipt. Here's what he found:
A third of every healthcare dollar never reaches anyone delivering care.
Your company pays $1.20 to deliver healthcare. Your provider receives $0.80. That 40-cent gap represents $1.5 trillion annually in administrative friction.
Where does it go? And why does this persist?
The Two Places Healthcare Dollars Disappear Before Reaching Providers
The money vanishes in two places.
Before care happens, money goes to navigating the system: brokers, TPAs, PBMs, utilization management, transaction fees. Most industries pay about 2 percent to administer a transaction. Healthcare pays 28 percent.
After care delivery, providers face a collection problem. Patients can't afford their high deductibles. Insurers deny claims. Providers often wait 2 to 9 months for payment and maintain entire departments just to chase the money. Once everything gets reconciled, they receive 70 to 80 cents of what they were contractually owed.
Why Employers and Providers Can't Agree on What Was Spent
Here's where it gets worse. The "dollar" everyone is tracking isn't the same dollar.
Newman describes a common scenario: An employer claims they spent $10 million with a provider. The provider says they only received $5 million.
Who's lying?
Nobody. They're both right.
The employer counts what left their bank account: the full charge plus all the navigation fees. The provider counts what they collected after patients didn't pay their portions and insurers denied claims. Different departments use different accounting methods. Even within the same organization, the numbers don't match.
The employer thinks they paid in January. The provider doesn't receive payment until September. The employer's finance team recorded it when they accrued the expense. The provider submitted the claim, it got denied, they appealed, it got partially paid, they wrote off the rest.
As Newman puts it: "There are no universal 'anchor units' or 'source of truth' that everyone can reference."
How Payment Uncertainty Drives Healthcare Prices Higher
When providers can't predict whether they'll get paid or when, they add a risk premium to every price. When nobody can agree on what happened, 30 percent of healthcare costs go toward reconciliation.
Providers budget on collecting 80 cents on the dollar because that's reality. They price accordingly. The uncertainty itself becomes a cost.
How Direct Contracting Cut Healthcare Costs by 38 Percent
Nomi Health partnered with self-funded employers in Michigan to eliminate payment uncertainty and reduce administrative friction through direct contracts with providers. No copays. No deductibles. No member responsibility. Guaranteed payment.
When providers knew exactly what they'd be paid and when, contracted rates dropped 20 to 30 percent. Providers had set their prices based on the risk of non-payment.
Utilization increased only 7 to 8 percent, entirely in preventive services like mental health and primary care. No increase in expensive services.
Overall healthcare costs dropped 38 percent by eliminating friction and measurement chaos.
"Providers are over the moon and winning awards. Employees are giving rounds of applause at benefits meetings." —Mark Newman
What Administrative Friction Really Costs Employers
Back to that school district spending $40,000 per teacher on healthcare. If a third of that is lost to friction, confusion, and risk premiums, that's over $13,000 per teacher. Money that could fund competitive salaries instead of reconciling incompatible data systems and paying for uncertainty.
As Sandra Raup says, "We're over tweaking." When everyone is tracking a different dollar and nobody trusts the system, you can't fix this incrementally. You have to bypass the complexity entirely.
Hear Mark Newman on the Relentless Health Value Podcast
Newman's conversation with Stacey Richter goes deeper into why "data isn't data," how perverse incentives maintain the status quo, and what it takes to build alternative infrastructure for self-insured employers.
Listen to the full episode of Relentless Health Value
Frequently Asked Questions
What is healthcare administrative friction?
Healthcare administrative friction refers to the costs of billing, claims denials, payment uncertainty, and reconciliation that consume roughly one-third of every healthcare dollar. Before a single patient sees a doctor, money flows to brokers, TPAs, PBMs, and transaction fees. Most industries pay about 2% to administer a transaction. Healthcare pays 28%.
Where do healthcare dollars go before reaching providers?
Money disappears in two places. Before care happens, it funds the machinery of navigating the system. After care happens, providers spend months chasing payment and typically collect only 70 to 80 cents of what they were contractually owed.
Why do employers and providers disagree on healthcare spending amounts?
They track different dollars. Employers count everything that leaves their bank account. Providers count what they actually collect after denials, appeals, and patient non-payment. Both numbers are accurate. Neither tells the full story.
What is direct contracting for self-funded employers?
Direct contracting connects self-funded employers directly to providers, cutting out the administrative middlemen. Employers guarantee payment. Providers skip the billing maze. Both sides win.
How much can direct contracting save self-funded employers?
Nomi Health's direct contracting model reduced overall healthcare costs by 38% for self-funded employers in Michigan without sacrificing care quality or access.
