The United States hasn’t built a healthcare system designed to lower costs. Instead, it has built an industry dedicated to arguing over them.
For decades, the U.S. healthcare system has relied on layers of gatekeepers to control medical spending. Intermediaries sit between patients, providers, and payers, overseeing processes such as utilization management, prior authorization requirements, network restrictions, payment integrity, and out-of-network claims repricing. Most of these mechanisms review, challenge, or renegotiate costs after care is delivered; others, such as UM and prior authorization, act before the care is delivered.
However, many vendors in this space claim they can lower costs using a percentage-of-savings model, where they’re paid based on how much they reduce a medical bill. While this sounds like it aligns incentives, in reality, it often benefits the vendor far more than the providers, payers, employers, or patients. Some intermediaries take 15–30% of the “savings” as their fee, distorting how costs are measured and managed.
This dynamic is especially clear in out-of-network claims. A doctor might bill $100, even though both the provider and insurer know the final payment will be lower. Vendors step in to negotiate the bill down—for example, to $50—then claim a $50 “savings” and charge a percentage of that amount. These reductions are marketed as cost containment, even though the original price was never realistic to begin with. The system doesn’t just tolerate administrative waste; it depends on it.
I’ve seen firsthand how dependent the industry’s cost-containment infrastructure is on this approach. Employers and health plans rely on outside vendors to handle everything from repricing claims to challenging bills and recovering payments. While these appear to produce short-term savings on individual claims by reducing the amount paid per transaction, they also introduce significant administrative complexity and do little to address the true drivers of healthcare spending.
As healthcare costs continue to climb, it raises an essential question: if the industry’s primary cost-control tools depend on taking a percentage of the negotiated savings, are we fixing the problem or just managing the symptoms of a system built to reward complexity?
After years of working within this system, I came to the realization myself that the models designed to “manage” healthcare spending are unsustainable. We can no longer afford to prioritize transactional wins at the expense of patients. In 2024, the United States spent roughly $5.3 trillion on healthcare, and reports now show that Americans worry more about paying for healthcare than any other expense, a stark signal that, despite constant “savings” being reported, nobody is actually seeing the benefit.
When vendors earn more as underlying costs rise, meaningful cost reduction becomes structurally difficult. This approach leaves employers and insurance companies trapped in a vicious cycle in which higher costs are celebrated by their vendor partners.
Breaking out of this will require the industry to completely rethink how the claims ecosystem is structured. AI makes this operationally feasible by automating the out-of-network repricing process start to finish, allowing payers to achieve the same cost-control outcomes as legacy vendors but at a far lower cost and with far less complexity.
Instead of taking a percentage of the savings generated from negotiated bills, innovative companies in the space are focusing on redesigning incentives and realigning the economics, helping improve payer margins. This allows employers and health plans to pay a fixed subscription fee to automate claims intake, editing, repricing, negotiations, and settlement.
This upends the backwards incentive structure. Under the percent-of-savings model, we are rewarding more expensive care. With a SaaS model, the value comes from giving organizations the opportunity to negotiate these claims themselves and cut their administrative spending. Nearly 20% of the $5.3 trillion spent on healthcare each year is tied to administrative costs. Knocking this number down is one of the most straightforward ways to lower healthcare spending in the country, without impacting the quality of care.
For decades, we’ve attempted to control costs by adding more intermediaries and administrative processes into an already complex system. This has only made healthcare more expensive, more opaque, and, honestly, more frustrating for the employers and patients. There’s a saying in the world of healthcare that if you’re not the patient or the doctor, you should ask what value you’re actually bringing to the system.
Cost management should not be about negotiating bills more aggressively or adding more administrative hoops for everyone to jump through. Cost management strategies need to focus on simplifying the system, doing away with the outdated processes that inflate costs, and building and deploying tools that allow organizations to control their spending.
We need to move from managing waste to eliminating waste. The industry should stop rewarding those who profit from friction and start rewarding those who eliminate it. In a $5.3T system, reducing administrative waste is one of the few levers that can lower costs at scale without compromising care.
Photo: seksan Mongkhonkhamsao, Getty Images
Navin Nagiah is the CEO and co-founder of Daffodil Health, an AI-first platform modernizing health plan administration and claims pricing to help payers and TPAs reduce costs and bring transparency to one of healthcare’s most complex systems. With more than two decades of experience, Navin previously served as Senior Vice President of Products at MultiPlan, where he led innovation across payment integrity and cost management solutions. It was there that he saw firsthand how legacy infrastructure, opaque pricing, and misaligned incentives drive administrative waste and rising healthcare costs – insights that inspired the founding of Daffodil Health. Earlier in his career, including time at McKinsey & Company, Navin focused on building and scaling new healthcare businesses, shaping his conviction that the system’s back-end requires fundamental reinvention.
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