Every denied claim is a move in a game.
Every appeal is a countermove. Prior authorizations, peer-to-peer reviews, documentation requests, downgrades from inpatient to observation status: each becomes another turn in a contest that has persisted for so long we’ve stopped recognizing it as one. We call it “the system.” We tell ourselves this is simply how healthcare works.
It isn’t. It’s how healthcare fights.
Like any prolonged conflict, this one consumes enormous resources. Hospitals build teams dedicated to recovering payments. Insurers build teams dedicated to reviewing, delaying, and contesting those same payments. Somewhere beneath that institutional tug-of-war sits the patient, largely unaware that the costs of the conflict eventually find their way back to the people paying premiums every month.
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This dynamic reminds me of what writer Scott Alexander famously described as the “Moloch trap”: a situation in which every participant behaves rationally according to their own incentives, yet the collective result benefits no one. Healthcare offers few clearer examples.
Hospitals have every reason to document exhaustively, code carefully, and appeal denials aggressively. For many organizations, reimbursement isn’t simply about profitability; it’s about survival. Every dollar successfully recovered helps keep departments staffed and doors open.
Insurers face an equally understandable set of incentives. Their responsibility is to manage costs and evaluate medical necessity across millions of claims. Every review, every denial, and every request for additional documentation is presented as an effort to ensure appropriate spending. Even when a claim is ultimately approved, delaying payment carries financial value. Holding money longer has economic benefits.
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Neither side is necessarily acting in bad faith. Each is responding to the incentives built into the system. Yet together they create something neither would likely choose if designing healthcare from scratch: an expensive administrative contest that consumes extraordinary amounts of time, labor, and money without improving patient care.
The scale of that friction is difficult to ignore.
The American Hospital Association has estimated that hospitals spent more than $40 billion in a recent year pursuing payment for care that had already been delivered, with billions of those dollars devoted specifically to appealing denials that were eventually overturned. Other industry analyses arrive at different totals, but they point in the same direction: tens of billions of dollars are spent every year not providing healthcare, but arguing about healthcare.
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The exact figures deserve some caution. Different organizations use different methodologies, and many commercial payer data remain difficult to evaluate independently. Industry groups and revenue-cycle vendors understandably have their own perspectives. Still, the broader trend is remarkably consistent. Administrative friction surrounding payment continues to grow, and with it grows the cost of simply moving money through the healthcare system.
Those costs don’t disappear. Hospitals cannot indefinitely absorb expanding administrative departments without incorporating those expenses into the prices they negotiate. Insurers cannot process increasingly complex claims operations without reflecting those costs in future premiums. Eventually, every dollar spent on documentation battles, appeals, utilization reviews, and reimbursement disputes becomes part of the financial architecture supporting healthcare.
The patient ultimately pays for both sides of the argument.
That reality often goes unnoticed because it appears nowhere on an explanation of benefits. No invoice identifies the portion of a premium devoted to appeals staff, utilization management software, physician reviewers, or denial specialists. Yet those costs exist, and they accumulate year after year as organizations adapt to an environment built on low trust.
Low trust is expensive.
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It requires verification, documentation, oversight, appeals, audits, and entire professions dedicated to translating one organization’s requirements into another organization’s language. Every additional safeguard may make sense in isolation. Together they create a system that spends enormous effort proving what clinicians often believed from the beginning.
The financial burden, however, may not even be the greatest loss. Every physician participating in a peer-to-peer review is time diverted from patient care. Every nurse assembling documentation for an appeal is attention pulled away from the bedside. Every case manager tracking authorization requirements is solving an administrative problem rather than a clinical one.
Healthcare often speaks about workforce shortages, physician burnout, and nursing fatigue. Those conversations usually focus on staffing ratios or reimbursement levels. Less attention is given to the enormous amount of professional attention consumed simply navigating payment processes. Attention may be healthcare’s most finite resource.
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Unlike equipment or buildings, attention cannot simply be manufactured. Every hour spent negotiating payment is an hour unavailable for diagnosis, education, reassurance, or treatment. Even when the system eventually reaches the correct reimbursement decision, the opportunity cost has already been paid.
Artificial intelligence may further complicate this picture. Many insurers already employ increasingly sophisticated algorithms to identify claims requiring additional review. Healthcare organizations are beginning to respond with AI-assisted documentation and appeals. It’s becoming possible to imagine a future in which one algorithm questions the necessity of a hospitalization while another drafts the response defending it.
Better tools may eventually reduce administrative burden. The concern is what happens if both sides simply become more efficient at sustaining the conflict instead of eliminating it. Faster denials met by faster appeals still represent resources devoted to disagreement rather than care.
It’s tempting to frame this discussion as hospitals versus insurers, heroes versus villains. That narrative may satisfy readers, but it doesn’t explain the system particularly well. Hospitals sometimes optimize documentation to maximize reimbursement. Insurers have legitimate obligations to identify unnecessary spending and protect the long-term viability of insurance pools. Both institutions serve important purposes. Both also respond predictably to incentives that reward caution, documentation, and verification.
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The difficulty isn’t that both sides are. Locally, every decision makes sense. Collectively, those same decisions produce a system that grows more expensive, more administratively complex, and more difficult to navigate each year.
Changing that outcome requires more than asking either side to “do better.” It requires changing the incentives themselves. Clearer documentation standards, greater transparency around denials, more consistent definitions of medical necessity, and reimbursement processes that reward accuracy rather than endurance could begin shifting the equilibrium toward cooperation instead of perpetual contest.
That is considerably harder than blaming one another, but it is also more likely to produce lasting improvement. Patients rarely witness any of this. They don’t attend peer-to-peer reviews or watch appeals specialists reconstruct medical records. They simply experience rising premiums, growing deductibles, delayed approvals, and increasing frustration with a healthcare system that feels far more complicated than it should.
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Those costs are often described as unavoidable consequences of modern medicine. But many are the price of maintaining a system in which two large institutions have learned to defend themselves against one another so effectively that the defense itself has become one of healthcare’s largest expenses.
That is the Moloch tax.
It isn’t collected by a government, listed on a receipt, or itemized on an insurance statement. It appears instead as higher premiums, larger administrative departments, delayed payments, growing documentation requirements, and fewer clinical hours available for patients.
No single organization created it. No single organization can eliminate it. But until the incentives that sustain this conflict begin to change, the bill will continue arriving in the same place it always has: with the people who never agreed to pay for the war in the first place.
Attention may be healthcare's most finite resource.
