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The Three Wise Men (Warren, Jeff and Jamie) To The Rescue?

The Three Wise Men (Warren, Jeff And Jamie) To The Rescue?

Large healthcare plans and other health-related stocks took a tumble last week on word that three very powerful men may be planning to transform the future of healthcare. Visionaries Warren Buffet of Berkshire Hathaway, Jeff Bezos of Amazon, and Jamie Dimon of JP Morgan Chase announced that they are creating an independent company focused on improving employee satisfaction and reducing healthcare costs for their respective companies and employees.

High-level executives from each company have already been designated to lead the efforts with technological solutions as an initial focus. The companies will create a non-profit that they say will not be beholden to profit-making incentives or constraints. In part, they will do this by focusing on technology, simplicity, quality, transparency, and reasonable cost. The announcement came weeks after rumblings that Amazon will jump into the drug-selling business, a potential move that could unhinge the Pharmacy Benefits Management (PBM) world as well.

It all sounds good, right? But what is the likelihood of success?

  • The three companies do have some firepower – numbers – in the marketplace. Together they have 1.1 million employees across the nation, which is small compared with the total insured base for the country. Various healthcare players – plans, PBMs, and providers – will have to play ball to some degree, as much for what this new entity will do, but also because it could be replicated many times over.
  • They do have the right kind of healthcare consumers. While there are exceptions, the larger insured group in the commercial world tends to have a relatively healthy (“beneficial”) member base – young, educated, and highly health-literate. While older workers in the commercial world tend to develop health conditions that can be significant, the complications with these populations do not tend to be as complex as the disabled Medicaid and aged and disabled Medicare populations.
  • Companies tend to have a better opportunity to drive changes in consumer healthcare behavior. They have workplace culture, promotions, incentives, and goodwill to bring to bear. Changing patient behaviors is a much tougher proposition with Medicaid, Medicare, and the Exchanges.
  • The established healthcare world tends to be hobbled by legacy technology. A clean slate on technology could lead to better transparency, simplicity, and the oft-promised cost-savings.

But, on the flip side, there are barriers they will face as well.

  • Insurance companies and health plans have invested billions in both technology and personnel to create plan offerings. While the three companies may come up with new technology options focused on consumer-driven healthcare models, they too will need what health plans offer in the way of utilization management, care management, and quality programs. Then there are the provider networks, enrollment, billing, claims payment, and other factors to think about.
  • As we alluded to above, driving cost reduction and quality improvement in the employer world will be much easier than with Medicare and Medicaid. The consumer-driven movement that is probably envisioned by the three executives is in its infancy in the commercial world, and their bold moves could certainly advance it. But the model will be much tougher to replicate in the Medicare and Medicaid systems.
  • As bright as these executives are and as clever as their companies’ talent may be, they are relative neophytes when it comes to healthcare. The announcement was scant on details – a clear signal that they are smart enough to know that what they are planning will be very complicated and will probably be years in the making.
  • Taking back some of what we said was a positive above, it is important to remember that the reach of the companies will be relatively small. And the truth is that many large companies have already begun taking much more ownership over healthcare design, benefits, wellness, contracting, and finance. In many ERISA relationships, health plans have simply become administrative arms. There are existing success stories about wellness programs helping to bend the cost curve.

So when three of the most powerful and visionary business executives collaborate on a new concept, we all should take heed. But the three wise men know all too well that they will need to leverage the significant assets of health plans, PBMs, and other providers to succeed even in a small way as they attempt to remake healthcare. So it is not likely that there will be a fundamental change in how healthcare is delivered in America. The massive sell-off of healthcare stocks was very much an over-reaction. Indeed, recent horizontal and vertical integration announcements probably portend greater changes.

What we do see is a reasonable and positive disruptive effect if executed correctly that will:

  • Help influence the value-based purchasing that is slowly emerging in healthcare
  • Mean an expansion of direct contracting with certain providers, especially centers of excellence
  • Create new approaches to health, wellness, prevention and benefits
  • Foster a new model for consumer engagement for health issues
  • Help to advance transparency not only with consumers but with the myriad of middlemen in the supply chain, including providers, plans, PBMs, and more
  • Advance the innovative use of technology in healthcare

Technology will perhaps have the greatest potential impact on healthcare. Amazon has especially excelled at leveraging innovative technologies successfully, and the three businesses could leverage this experience profoundly. We see the advantages of using technology to transform patients into more informed and engaged healthcare consumers so they can make wise choices – whether or not to take the cheaper generic drug that is just as effective, following through on prevention and routine doctor visits, or proactively managing their disease states and conditions. While the commercial world has healthier individuals overall, it could serve as an incubator for the harder to serve populations.

In the end, we hope the effort is a further impetus for transforming the American healthcare system from a transaction-based model to a value-based one. We complain here often that America spends almost 20% of gross domestic product on healthcare (compared with 10% to 12% in most developed nations), yet the nation has among the lowest aggregate health outcomes of this grouping. The three wise men may help begin to change this.

Key Takeaways:

  • The collaboration between Berkshire Hathaway, Amazon and JP Morgan Chase is interesting but the huge healthcare selloff was an over-reaction.
  • Don’t expect a radical transformation in healthcare due to the initiative.
  • There could be some good outcomes, including a further focus on value-based purchasing, health and wellness, consumer engagement, and the use of technology in healthcare.

Marc Ryan

Marc S. Ryan serves as MedHOK’s Chief Strategy and Compliance Officer. During his career, Marc has served a number of health plans in executive-level regulatory, compliance, business development, and operations roles. He has launched and operated plans with Medicare, Medicaid, Commercial and Exchange lines of business. Marc was the Secretary of Policy and Management and State Budget Director of Connecticut, where he oversaw all aspects of state budgeting and management. In this role, Marc created the state’s Medicaid and SCHIP managed care programs and oversaw its state employee and retiree health plans. He also created the state’s long-term care continuum program. Marc was nominated by then HHS Secretary Tommy Thompson to serve on a panel of state program experts to advise CMS on aspects of Medicare Part D implementation. He also was nominated by Florida’s Medicaid Secretary to serve on the state’s Medicaid Reform advisory panel.

Marc graduated cum laude from the Edmund A. Walsh School of Foreign Service at Georgetown University with a Bachelor of Science in Foreign Service. He received a Master of Public Administration, specializing in local government management and managed healthcare, from the University of New Haven. He was inducted into Sigma Beta Delta, a national honor society for business, management, and administration.

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