MedCity Influencers

Is it any surprise that corporate giants are taking on healthcare?

Lack of innovation has contributed to the industry’s failure to drive down the cost curve and regardless of how Amazon/Berkshire/JP Morgan moves forward, other large employers will be anxious to leverage any programs that successfully lower costs.

Given the state of the country’s healthcare system, is it any wonder that corporate giants Amazon, Berkshire Hathaway and JP Morgan Chase have joined forces to seek a better alternative for their combined 1.2 million employees?

Healthcare expenditures climbed 4.5 percent in 2016 to a whopping $3.3 trillion, or almost 18 percent of the country gross domestic product (GDP). Between 2016 and 2015, healthcare spending is projected to grow at an average rate of 5.6 percent per year, or 1.2 percent faster than the GDP. At the same time, the US pays considerably more for healthcare than other industrialized nations, yet ranks at the bottom of the heap among 11 developed countries.

The news of the Amazon/Berkshire/JP Morgan alliance isn’t much of a shock for anyone who has felt the sting of rising healthcare costs over the last few years, whether as an employer paying for some or all of our employees’ healthcare coverage, or as an individual consumer faced with increasingly large out-of-pocket medical costs. Though they have not yet revealed many specifics, I believe that the Amazon/Berkshire/JP Morgan joint venture could be healthcare’s next big thing.

Here’s why.

The timing is right

In 2009, Congress passed the American Recovery and Reinvestment Act (ARRA) to jumpstart the economy. Included in that legislation was the HITECH Act, which aimed to promote the wide-spread adoption and meaningful use of health information technology. By encouraging the meaningful use of EHRs, the government was also stimulating the creation of more data for analytics, including details to help evaluate clinical outcomes. The HITECH Act thus laid the groundwork for the shift from fee-for-service payment models to models that reimburse providers based on the quality of care delivered to their patient population.

Despite a steady stream of new initiatives to promote the delivery of quality care, the transition to value-based payment models has been slow. Various government programs encourage the meaningful use of EHRs, but smaller providers and EHR vendors have often struggled to meet program requirements. This has spurred widespread market consolidation among EHR and HIS vendors, hospitals, and integrated delivery systems. The surviving EHR vendors have benefited from the wealth of Meaningful Use stimulus dollars, but product innovation has suffered because developers have been forced to prioritize updates that address regulatory requirements.

The lack of innovation has contributed to the industry’s failure to appreciatively drive down the cost curve. Frustrated employers like Amazon, Berkshire, and JP Morgan continue to struggle with rising healthcare costs, while low-employment rates have increased the competition for skilled workers who are demanding higher wages and quality benefits. Rather than wait for the government to step in with new programs that promote innovation and bend the cost curve, Amazon, Berkshire, and JP Morgan saw an opportunity to create a bit of disruption in the industry by developing their own innovative programs.

The players bring unique and deep expertise

Each of the three companies bring something special to the table. Amazon has demonstrated its devotion to data and process, and the ability to instantly provide vast computing power to anyone that has an internet connection. Given their well-established nationwide delivery infrastructure and e-commerce network, Amazon has the potential to quickly disrupt the distribution of medications – which account for about 10 percent of the total healthcare spend – as well as medical supplies, durable medical equipment, and other commodity goods.

Berkshire Hathaway, led by billionaire investor Warren Buffet, brings deep expertise in risk management, which could prove valuable when creating and managing delivery models that encompass outcomes-based reimbursement and risk sharing. Coupled with Amazon’s established ability to create intelligent, data-driven systems that track, analyze and predict behaviors, it’s easy to envision the creation of a transformational solution.

J.P. Morgan Chase offers deep financial resources that could support a variety of initiatives, including self-insurance underwriting. In addition, the company’s long-term outlook for investment capital is well-suited for seeing any projects through to a place of real innovation.

They provide a built-in test bed for innovation

Between the companies’ employees and their dependents, Amazon/Berkshire/JP Morgan has a perfect test bed of more than two million individuals to try out new innovations. The partners have an endless number of big or small initiatives they could evaluate internally, then commercialize if proven successful.

For example, the companies could deploy a new platform for care delivery that includes sophisticated tracking tools and reporting systems to drive the delivery of cost-effective care. Or, they could leverage Amazon’s Alexa to assist with care management, to remind patients to take medications or schedule a doctor’s appointment or to provide information on treating minor ailments.

A very realistic alternative is the deployment of a medication distribution system that uses Amazon’s existing e-commerce infrastructure and same-day delivery resources to dramatically cut prescription drug costs.

And, as an entity that covers two million lives, the companies have a tremendous advantage when negotiating for the cost of care. Especially in areas with large concentrations of employees, the partners could easily dictate how much they will pay for care. If they’re unable to settle on acceptable pricing, the alliance will have the capital to build their own facilities and create an infrastructure that supports the delivery of cost-effective care.

Regardless of how Amazon/Berkshire/JP Morgan partners choose to move forward, other large employers will be anxious to leverage any programs that successfully bend the cost curve. Though we have seen many other organizations attempt to disrupt healthcare in recent years – Microsoft, NantHealth, Google Health are a few that come to mind – this joint venture involves players with impressive assets and capabilities at a time that healthcare is in desperate need of innovation.

Healthcare’s next big thing? Time will tell but I personally hope so.

Photo: manop1984, Getty Images

 

 

 

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