February 05, 2018
Rose
Details about the proposed venture are limited but it nonetheless sent shock waves across the industry. Stocks for industry mainstays like United Health, CVS, Express Scripts, Mylan and others plummeted. And, on the heals of mega-deals like CVS’ $69 billion acquisition of Aetna two months ago, speculators theorized it might be Armageddon for healthcare as we have known it in the U.S.
First, what we know for sure:
The new venture will focus on the collective buying power as employers of healthcare for the 1.15 million employees in their organizations. Their approach features five strategies widely. widely used by large self-insured employers to contain their employee health costs. This one is expected to leverage technology in a unique way:
- Primary care gatekeepers: Large employers vest considerable responsibility in primary care services that appropriate preventive health, manage chronic populations and control referrals to specialists and hospitals. Promotion of healthiness and wellbeing, the integration of physical and behavioral health and alternatives therapies that reduce dependence on unnecessary access prescription drugs are mainstays of the primary care gatekeeping model.
- Narrow networks: The networks of hospitals, allied health professionals, hospitals and others will be tight. Those providing high quality, low cost services will be contracted, and employees will be empowered with data to monitor their performance.
- Supply chain management: Every line item fixed and direct cost will be lean. Prescription drug use, for instance, will be accessed through a restrictive formulary, and so on. Amazon is known to be hyper-efficient in its operating budget: employees are expected to fly economy class and office opulence is a no no.
- Employee choice & risk sharing: A key to the venture’s uniqueness will be the tools and responsibility given employees to select plan options that align with their needs and preferences. High deductible plans will be options, but technologies that equip them to make informed choices of doctors, treatments, hospitals, drugs and others will be a central feature.
- Technology: Technologies that allow employees to own their medical records, interact with Alexa for information and counsel, integrate smart devices and engage with their providers are the backbone of the venture. Knowing treatment options, their costs and where the highest and best value is accessible in the employee’s provider network is central to the venture’s success.
None of these five is new, but together, they’re powerful IF implemented aggressively and at scale.
Let’s face it. Healthcare’s ripe for disruption: we cost too much, hide prices that bear faint resemblance to their underlying costs, avoid accountability for outcomes, complain we’re underpaid and over-regulated, protect our silo’s so each gets a piece of the pie, mark everything up and pass-it-through and declare we’re the best system in the world.
Their effort is not the first employer-led campaign to force fiscal accountability across the healthcare industry. Since 2000, overall inflation has increased 41%, but employer health benefits costs have risen 191%. Thus, groups like the National Business Coalition on Health, Health Transformation Alliance, Leapfrog and Catalyst for Payment Reform have been pushing employers to be more actively involved.
But the venture proposed by Amazon, JPMorgan and Berkshire Hathaway might be different. Here’s why:
1-The Power of the Players: Amazon’s impact on every industry it touches is transformative. It has fundamentally altered retailing, movie and broadcast production, grocery merchandising, home furnishing and promises the same for healthcare. Warren Buffet’s prowess as an investor is legendary: investments in healthcare were not in his portfolio because he found railroad cars more predictable but at 86 years young, he sees tackling health costs as an opportunity. And Jamie Dimon’s bank earned almost $700 million from investment banking fees in healthcare, but sees this a need for his bank to tackle its own health cost problem. This trio, all billionaires, is more inclined to seek forgiveness than ask permission, so it’s expected they’ll ruffle feathers and challenge convention along the way. And though the 37 members of their respective Boards of Directors have no direct experience in health insurance or delivery, each ran large companies where employee health costs were an issue. This deal is focused on reducing employee health costs in the three companies…and then perhaps more.
2-The Timing: Healthcare is in limbo. The Affordable Care Act has been disabled by the elimination of the individual mandate in the Tax Cuts and Jobs Act. Pressure is building for federal intervention in drug pricing. The insurance market is unsteady, especially the individual market. Physicians aren’t happy. Hospitals are closing. And the majority of Americans are unable to navigate the system for themselves or pay their medical bills. The public’s united that health costs are too high and completely divided about what to do about it. Health costs are a fourth of federal spending and a fifth of state spending pushing deficit hawks to choose between healthcare for kids or roads, bridges and classrooms. For employers, lack of clarity about health reform and their growing costs are not tolerable: they’re looking for fresh solutions. And they’re not looking to the government for answers.
3-Consumer Dissatisfaction with Healthcare: On a scale of three stars, with 3 best, 62.7% of Yelp ratings for healthcare are one-star ratings. Satisfaction with healthcare in every sector is on the decline. In Jeff Bezos’ 2016 letter to shareholders, he observed: “…customers are always beautifully, wonderfully dissatisfied, even when they report being happy and business is great. Even when they don’t yet know it, customers want something better, and your desire to delight customers will drive you to invent on their behalf. No customer ever asked Amazon to create the Prime membership program, but it sure turns out they wanted it.” This philosophy of consumerism will no doubt permeate the venture. Consumerism in healthcare may become its driving force.
In the 2020 Presidential campaign and after, healthcare will be a contentious debate. The question of whether healthcare is a fundamental right or privilege will be front and center. Half of the employers in the U.S. provide employee health insurance coverage and half don’t. Two in three Americans is stressed about healthcare costs and at least 30 million Americans will have no insurance coverage at all.
While employers absorb the bulk of healthcare’s cost increases, the industry plods along. The shift from volume to value is too slow and complaints by providers, insurers and drug companies that we’re over-regulated and under-valued fall on death ears.
Might the Amazon-JPMorgan-Berkshire Hathaway venture spark radical change in the healthcare industry? Might it prompt a balance of the system’s investments between cures and prevention? Might this venture be the impetus for a social movement to transform the system? Might it precipitate a national discussion about access, affordability and equity? No one knows for sure.
In the announcement of the venture January 30, Berkshire Hathaway Chairman and CEO Warren Buffett said “The ballooning costs of healthcare act as a hungry tapeworm on the American economy. Our group does not come to this problem with answers. But we also do not accept it as inevitable. Rather, we share the belief that putting our collective resources behind the country’s best talent can, in time, check the rise in health costs while concurrently enhancing patient satisfaction and outcomes.”
Amazon, JPMorgan and Berkshire Hathaway do not view their venture as Armageddon for the industry but they clearly see it as a wake-up call.
from THCB http://ift.tt/2E2zkaB
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