Re-Architecting Healthcare Through Precedents Thinking

How do you fix a $265 billion inefficiency that everyone calls “intractable”? By learning from what already works.

In their HMPI paper, Stanford’s Prof. Stefanos Zenios and Prof. Kevin Schulman apply Precedents Thinking - a framework that reimagines healthcare reform using proven solutions from finance, aviation, and telecom.

The result? Two high-impact models that could re-architect how the U.S. healthcare system handles contracts, claims, and payments. Here’s my take on what makes this study a blueprint for real change.

1. The Unseen Drag on U.S. Healthcare

Behind the world’s most advanced hospitals and medical research lies a staggering inefficiency: administrative waste. In 2024, total U.S. healthcare spending exceeded $4.8 trillion, and nearly one-quarter of that - roughly $265 billion each year - is consumed not by care delivery, but by paperwork, coding, claims adjudication, and contract friction.

Among OECD nations, the U.S. spends almost ten times the per-capita average on administrative functions. Despite decades of policy initiatives - from HIPAA’s electronic-data reforms to ACA-era transparency rules, the system remains fragmented: 317,987 health plans, 599,204 codes, and 57 billion negotiated prices. Every provider and payer maintains bespoke contracts, workflows, and IT integrations. Complexity breeds cost; opacity sustains it.

Most academic and policy attempts treat this sprawl as “structural inertia.” But the latest research from Stanford’s Graduate School of Business and School of Medicine proposes something radically pragmatic: stop reinventing solutions and start borrowing from precedents that already worked elsewhere.

2. From First Principles to Precedents Thinking

Professors Stefanos Zenios and Ken Favaro introduced Precedents Thinking in their Harvard Business Review feature (2025). At its core, the framework reframes innovation as re-combination rather than invention: every breakthrough is a creative assembly of prior proven mechanisms—precedents—adapted to new contexts.

The approach follows three disciplined stages:

1. Frame and Deconstruct the problem into elemental sub-challenges.

2. Search for Precedents — solutions that have demonstrably solved comparable issues in other industries.

3. Recombine Creatively those precedents into a coherent, context-specific architecture.

The premise is elegant: when innovators limit experimentation to already-validated mechanisms, they de-risk investment, compress timelines, and attract capital even for “intractable” issues like healthcare’s administrative bloat.

3. The HMPI Study: Applying the Framework

The HMPI paper, “Applying Precedents Thinking to the Intractable Problem of Transaction Costs in Healthcare,” operationalizes this theory. Authored by a multi-disciplinary Stanford team—Brooke Istvan, Perry Nielsen Jr., Megan Eluhu, Bryan Kozin, Walt Winslow, David Scheinker, Kavita Patel, Kenneth Favaro, Stefanos Zenios, and Kevin Schulman—the study is the most systematic application of Precedents Thinking yet.

Research Design

• Consensus Framing: A Delphi-style workshop convened academics, policy experts, and the methodology’s originators to define the central problem: “How can we create the standardization and infrastructure needed to reduce administrative waste in healthcare?” Two deconstructions followed: (1) Reduce heterogeneity and complexity of contracts. (2) Build the payment infrastructure for efficient transactions.

• Precedent Discovery: Using expert interviews and AI-assisted searches (ChatGPT 2023 prompts), researchers identified 82 precedents across industries - from finance to public utilities. Each was coded by industry, governance type, and mode of change (standardization, digitization, centralization).

• The distribution: Finance 22% | Public Services 22% | Technology 16% | Healthcare 12% | Remaining industries 28%

Fifty-seven percent were private-sector solutions; 21% public-private partnerships; and 49% employed standardization as the dominant change vector.

Creative Combination: From these, 26 high-priority precedents were selected and recombined into actionable “composite solutions.” The outcome: a two-part reform blueprint centered on machine-readable modular contracts and a uniform digital transaction platform.

4. Part I - Modularized Machine-Readable Contracts

The Precedent Logic

Mortgage markets of the 1970s provide the first analogy. When Fannie Mae and Freddie Mac standardized mortgage forms into modular templates, they unlocked liquidity and transparency in U.S. housing finance. Similarly, mobile-phone Standard-Setting Organizations (SSOs) achieved industry-wide interoperability by crowd-sourcing standards through self-governed consortia.

The Healthcare Translation

Every payer–provider contract today is bespoke. Prof. Zenios and Prof. Schulman’s team proposes a digital modular framework—a family of interoperable contract modules covering billing, prior authorization, quality metrics, and compliance. Contracts remain customizable but must conform to a machine-readable schema that allows automated adjudication.

The governing body could mirror telecom SSOs—potentially AHIP, HHS, or a hybrid public-private consortium—charged with maintaining technical specifications, including SMART on FHIR API requirements for data exchange.

This model would convert today’s analog paperwork into executable logic: contracts as code, embedded directly in payment workflows.

5. Part II - Uniform Digital Transaction Infrastructure

The Precedent Logic

Financial systems solved the trust and interoperability problem decades ago.

• SWIFT (Society for Worldwide Interbank Financial Telecommunications) standardized global payment messaging.

• Stripe built a developer-centric digital-first payments stack accessible via APIs.

• FAA and state utility commissions exemplify how government-anchored oversight can sustain reliability and public trust in critical infrastructure.

The Healthcare Translation

With modular contracts as the input layer, a shared national transaction platform becomes possible—a Stripe-for-healthcare that processes all payer–provider payments on standardized rails.

Instead of fragmented clearinghouses, the platform would execute smart contracts, verify compliance, and settle payments in near real time. Governance options include a public-benefit corporation or regulated utility model to prevent rent-seeking. Funding could mirror SWIFT’s self-sustaining transaction-fee structure—yet remain below current per-claim administrative costs.

The authors emphasize that governance—not technology—is the bottleneck. Effective oversight must balance standardization with market diversity, much as the FAA harmonized aviation safety while enabling competition.

6. Quantitative Insights

Interpretation: The high-priority subset skews heavily toward private or hybrid governance and mechanisms of standardization + centralization. In other words, durable administrative simplification correlates with the presence of shared standards and collective governance rather than top-down mandates.

7. Catalyzing a Virtuous Cycle

The study visualizes a “virtuous cycle” (Exhibit 4) initiated by dual adoption: modular contracts + uniform infrastructure. As transaction friction drops, market entry accelerates, liquidity improves, and competitive pressure raises system value. Improved value then justifies continued reinvestment in infrastructure - a compounding loop reminiscent of network externalities in finance and telecoms.

8. Governance Pathways

The authors outline several regulatory vectors to institutionalize the model:

• Federal mechanisms: leverage existing authority under HIPAA, the Affordable Care Act, and CMS interoperability mandates.

• Executive alignment: coordinate with AI governance directives to standardize data flows and contracting for algorithmic compliance.

• Labor & Commerce Departments: apply fiduciary oversight for employer health plans and interstate commerce.

• State Medicaid pilots: use smaller, faster jurisdictions to demonstrate scalability.

They caution that the tension between standardization and heterogeneity must be managed deliberately. Excess customization reinstates friction; over-standardization suppresses innovation. The solution: industry-run SSOs that iterate standards while maintaining interoperability—exactly as telecom, finance, and aviation have done.

9. Comparative Lens: Precedents Thinking vs. Other Frameworks

For policy-dense systems like healthcare, Precedents Thinking offers a middle path—creative yet grounded, ambitious yet evidence-informed.

10. Limitations and Future Research

The authors acknowledge three methodological limitations.

First, there is inherent subjectivity in precedent selection—different expert panels might converge on alternative sets of solutions.

Second, potential coverage bias exists, as certain global or niche precedents may have been underrepresented in the search process.

Third, external validity remains to be established; the scalability and real-world performance of modular, machine-readable contracts within healthcare are yet to be empirically tested.

Future research should prioritize pilot implementations that measure quantifiable outcomes—such as reductions in claims-processing time, denial rates, and administrative headcount. Robust empirical validation of these interventions could help formalize Precedents Thinking as a reproducible framework for large-scale innovation.

11. Implications for Policymakers and Entrepreneurs

For policymakers, the research reframes administrative simplification as infrastructure design, not incremental reform. Legislation should enable modular contracting and fund backbone payment platforms, mirroring how the Federal Reserve System or FAA standardized financial and aviation ecosystems.

For entrepreneurs and health-tech founders, the opportunity is clear:

• Build API-based contracting platforms compatible with FHIR and SSO-approved schemas.

• Develop middleware that automates contract adjudication.

• Offer interoperable payment gateways leveraging the proposed digital rails.

As these layers mature, they will create investable infrastructure akin to fintech’s payments revolution - anchored in compliance and transparency rather than opacity.

12. Why It Matters

Every wasted administrative dollar is a missed clinical opportunity. Reducing even half of the $265 billion administrative overhead could finance universal childhood immunization or eliminate medical debt for millions.

The Stanford team’s insight is pragmatic optimism: by learning from precedent, we can modernize without paralysis. Healthcare does not need another round of theoretical reforms; it needs mechanisms that already work—standardized, digitized, and governed collaboratively.

13. Key Takeaways

• Administrative costs ≈ 25 % of U.S. health spending; $265 billion annually.

• Precedents Thinking = systematic reuse of proven cross-industry solutions.

• HMPI study identified 82 precedents; 26 high-priority; 49 % standardization.

• Core solutions: Modularized machine-readable contracts (mortgage + SSO models). Uniform digital transaction platform (SWIFT + Stripe models).

• Governance must ensure interoperability, transparency, and anti-rent-seeking.

• Potential savings > $250 billion + improved patient and provider experience.

  
  

14. Conclusion

The HMPI paper demonstrates that innovation need not begin with a blank page. By codifying lessons from banking, telecom, aviation, and utilities, Prof. Zenios and Prof. Schulman’s team design a credible roadmap to fix the administrative machinery of healthcare.

Their message is both managerial and moral: complexity is a choice, not destiny. And if we can modularize mortgages, standardize air travel, and digitize global payments, we can certainly re-engineer the business of healing.

15. Citation:

Brooke Istvan, Perry Nielsen Jr, Megan Eluhu, Bryan Kozin, Walt Winslow, David Scheinker, Kavita Patel, Kenneth Favaro, Stefanos Zenios, Kevin Schulman. 2024. Applying Precedents Thinking to the Intractable Problem of Transaction Costs in Healthcare. Health Management, Policy and Innovation (www.HMPI.org). Volume 9, Issue 3

16. Link to HMPI Paper: Read Full Paper