News that Amazon, Berkshire Hathaway, and JPMorgan Chase are forming a nonprofit company to cut healthcare costs and improve quality sent shivers through the sector. Details were sketchy, but if you are already taking strategic steps to improve value, you may be rewarded.
By now, you’ve heard that Amazon’s entry into the healthcare space, long-anticipated, will involve the creation of a new nonprofit company with banking giant JPMorgan Chase and the companies that make up Warren Buffet’s Berkshire Hathaway.
Though details are sketchy, a top executive from each partner will initially lead the effort, which is intended to use technology solutions to simplify the healthcare system and, more broadly, increase transparency and ultimately, cut costs. With nearly 1.1 million employees among them, no one should doubt their resolve, or their heft.
Given the scant details of the effort so far, gauging whether this is a transformative event or something that will nibble at margins is unclear. Amazon’s involvement, thanks to its huge success disrupting retail, is no small matter.
These companies certainly have market-moving power, at least in some geographic areas. But they may yet underestimate the magnitude of the challenge they face. Here’s one sobering statistic for them: Federal, state, and local government spending accounts for 45.2% of national health expenditures, while private business accounts for only 19.9%, according to the Centers for Medicare and Medicaid Services.
Many others have tried this kind of thing. The Pacific Business Group on Health and The Leapfrog Group each started with the same goal and include a wide swath of the largest corporations in America as members.
Other companies have successfully developed centers of excellence programs that reward organizations for transparency and provide bundled payments for episodes of care. Those ideas are meant to help healthcare move away from the fee-for-service payment system, from which many of its ills ultimately stem. We’ve covered these efforts for years here—the story on centers of excellence above cites value as its driving force and it dates to 2013!
The work of many of these groups and individual health systems has brought notable successes, but broadly, reducing the rate of healthcare inflation to at least the rate of general inflation has not been one of them.
Healthcare now represents, depending on your source, between 18% and 20% of GDP, a much larger share of the economy than almost any other developed nation. The inflation rate rises and falls, but over the past 20 years, the headline consumer price index has risen at an average annual rate of 2.2%, versus the price of medical care, which has risen 70% faster, at an average annual rate of 3.6%.
In words that are sure to become famous or infamous, depending on your point of view, Warren Buffett explicitly said in the press release announcing the effort that the “ballooning costs of healthcare act as a hungry tapeworm on the American economy.”
How does that feel, healthcare leadership? It’s crude, but it’s hard to argue with the aptness of the analogy.
Most of the efforts I referenced above start with grand goals that ultimately devolve into programs that, while successful in a narrow, company-focused way, just nibble at the margins of a still-disjointed healthcare system that remains difficult for patients to navigate and judge value.
In covering healthcare services for nearly 18 years, I have witnessed a complex industry with many well-meaning leaders gradually coming to terms with the following:
- Healthcare is technologically backward compared to other industries
- It’s opaque
- It has more than its share of fraud and abuse
- It costs too much
The industry has also come, rightly or wrongly, to the following conclusions:
- The propensity of individuals to consume healthcare services is nearly infinitely elastic
- Government intervention has not worked
- Value-based reimbursement is still spotty
- These issues are beyond any one organization to solve
To use a healthcare-themed analogy, ever since Amazon managed to put traditional retail on life support, pundits have wondered when it might take on its biggest potential challenge—solving healthcare’s cost and quality conundrum. That the effort includes partners in a nonprofit company has to come as something of a surprise, and perhaps that makes it less scary to healthcare leaders.
However, no one should doubt its resolve, and starting with allies like JPMorgan Chase and Berkshire Hathaway’s variety of companies adds even more heft to the effort.
But here’s what healthcare leaders already know: This one effort will have as tough a time as any predecessor in changing the algorithm that makes fixing healthcare’s problems with cost and quality so diabolical. Buffett acknowledges as much.
“Our group does not come to this problem with answers. But we also do not accept it as inevitable,” he says in the release. “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.”
We’re all patients at one point or another, and we all pay for healthcare too. So for that reason alone, we should all hope the effort succeeds.
Philip Betbeze is the senior leadership editor at HealthLeaders.