Tuesday’s announcement about Amazon, Berkshire Hathaway and JPMorgan (A/BH/JP
Healthcare organizations were shaken. Bloomberg Markets reported that:
Pharmacy-benefit manager Express Scripts Holding Co. fell as much as 11 percent, the most intraday since April, at the open of U.S. trading Tuesday, while rival CVS Health Corp. dropped as much as 6.4 percent. Health insurers also fell, with Anthem Inc. losing as much as 6.5 percent and Aetna, which is being bought by CVS, sliding as much as 4.3 percent.
As expected, these firms’ stock prices rebounded the next day. But you could interpret the drops as reflections of the perceived fragility of healthcare companies’ dominance and traders’ confidence in the potential power of Amazon’s newly announced entity. Legacy healthcare firms, with their well-earned reputations for relentlessly opaque arrangements and egregious pricing, are vulnerable, especially to proven disruptors who believe that taming healthcare’s excesses is achievable. Meanwhile, many Americans have come to believe in Amazon’s ability to deliver.
Those who buy healthcare for employers and unions probably quietly rejoiced at the announcement. For them, the prospect of a group that might actually transform healthcare would be a breath of fresh air. In my experience, at least, the CFOs and benefits managers at employers and unions are acutely aware that they’re being taken advantage of by every healthcare industry sector. They’re genuinely weary, and they’d welcome a solid alternative.
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Their healthcare intentions notwithstanding, the A/BH/JPM group is formidable, representing immense strength and competence. Amazon is an unstoppably proven serial industry innovator, continuing to consolidate its position in the U.S. and in key markets globally. Berkshire Hathaway harbors significant financial strength and a stop-loss unit, U.S. Medical Stop Loss, fluent in underwriting healthcare risk, which should be handy. In addition to the fact that JPMorgan is the nation’s largest bank, with assets worth nearly $2.5 trillion in 2016, it has a massive list of prospective buyers in its commercial client base.
This triumvirate knows that, in healthcare, they have an advantage. There are proven but mostly untapped approaches in the market that effectively manage healthcare clinical, financial and administrative risk, consistently delivering better health outcomes at significantly lower cost. In the main, legacy healthcare organizations have ignored these solutions, because efficiencies would compromise their financial positions.
To put this into perspective, consider that, since early 2009, when the Affordable Care Act was passed, the stock prices of the major health plans have grown a spectacular 5.3 to 9.6 times -- in aggregate, 3.7 times as fast as the S&P 500 and 3.2 times as fast as the Dow Jones Industrial Average.
At the end of the day under current fee-for-service arrangements, healthcare’s legacy organizations make more and have rising value if healthcare costs more. If they take advantage of readily available solutions that make healthcare better and cost less, earnings, stock price and market capitalization will all tumble. They’re in a box.
What little we know about Amazon’s intentions indicates that they are ambitious. Presumably, they’ll begin by bringing technology tools to bear. That could cover a lot of territory, but assembling and integrating high-value narrow networks by identifying the performance of different healthcare product/service providers seems like a doable and powerful place to begin. High-performance vendors exist in a broad swath of high-value niches. Arranging these risk management modules under a single organizational umbrella can easily result in superior outcomes at dramatically less cost than current health care spending provides.
Amazon has developed a relationship with industry-leading pharmacy benefits manager (PBM) Express Scripts (ESI), likely to operationalize mail order and facility-based pharmacies. Given ESI’s history of opacity and hall-of-mirrors transactions – approaches that are directly counter to Amazon’s ethos – it’s tempting to imagine that that relationship is a placeholder until Amazon can devise or identify a more value-based model.
Also, a couple weeks ago, Amazon hired Martin Levine, MD, a geriatrician who had run the Seattle clinics for Boston-based Medicare primary care clinic firm Iora Health. This could suggest that Amazon aspires to deliver clinical services, likely through both telehealth and brick-and-mortar facilities.
All this said, we should expect the unexpected. The A/BH/JPM announcement wasn’t rushed, but the result of a carefully thought through, methodical planning exercise. As it has done over and over again – think Prime video; two-day, free shipping; and the Echo – it is easy to imagine that Amazon could present us with powerful healthcare innovations that seem perfectly intuitive but weren’t previously on anyone’s radar.
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What is most fascinating about this announcement is that it appears to pursue the pragmatic urgency of fixing a serious problem that afflicts every business. At the same time, it may represent an effort to subvert and take control of healthcare’s current structure.
So, while we may be elated that a candidate healthcare solution is raising its head, we should be skeptical of stated good intentions. Warren Buffett’s now-famous comment that ballooning healthcare costs are “a hungry tapeworm on the American economy” rings a little hollow when we realize that Berkshire Hathaway owns nearly one-fifth of the dialysis company Da Vita, a model of hungry health industry tapeworms.
Finally, we should not doubt that this project has aspirations far beyond U.S. health care. The corporatization and distortion of healthcare’s practices is a global problem that will be susceptible to the same solutions of evidence and efficiency everywhere.
All this is promising in the extreme, but there’s also a catch. The U.S. healthcare industry’s excesses undermine our republic and have become a threat to our national economic security. The solutions that this A/BH/JPM project will leverage could become an antidote to the devils we all know plague our country’s healthcare system. That said, we should be mindful that, over the long term, our saviors could become equally or more problematic.
