It seems like there’s a new and breathtaking health care deal in the headlines practically every week.
Unexpected partnerships are popping up all over as players outside of health care are increasingly interested in getting into — and, they say, disrupting — the health care game. The size of the deals and the pace of change are staggering. To name just a few:
- Cross-sector partnerships like the CVS/Aetna merger.
- Walmart looking to buy Humana, the health insurer.
- Uber positioning itself as a medical transportation service.
- Cigna proposing to buy Express Scripts.
- Hospital groups getting into the drug manufacturing game.
- And the proposed partnership among Amazon, Berkshire Hathaway, and JPMorgan Chase.
What should we make of the mergers and strange-bedfellow partnerships that are getting so much attention? Will they radically change the way health care is delivered and how we as patients experience it? Or will it be all sizzle, no steak? Something in between?
The Amazon/Berkshire/JPMorgan venture is perhaps the buzziest proposal of all. The announcement prompted a combination of excitement mixed with skepticism among the media and health care experts. What’s interesting to me is that it’s gotten so much attention not only because the players are such big names, but also because the details are so scant. (I particularly enjoyed David Blumenthal’s take: “Conspiracy theorists might even wonder if three wily tycoons have just launched a brilliant ploy to get all of us to crowdsource ideas that will help them figure out how to remake health care.”) All we actually know from the companies’ joint news release is that (1) the new venture is setting out to reduce costs and improve employee satisfaction and (2) that its initial focus “will be on technology solutions that will provide U.S. employees and their families with simplified, high-quality, and transparent healthcare at a reasonable cost.”
What’s not to like, other than its exceptional vagueness? In practical terms, I could imagine this venture doing various things: serving as a doctor finder, providing online appointment booking, serving as a personal and digital health advisor, changing insurance designs and incentives, negotiating lower prices, functioning as yet another pharmacy benefit manager, or running a version of retail clinics.
I can think of many reasons to be optimistic, and lots of reasons why it might be a big flop. I’ll put on my optimist’s hat first:
- For consumers, maybe they can make the thicket of health care simpler and easier to use. I don’t know anyone who believes, “Our health care system is great; I can’t think of anything I’d change.” The current system is complicated and expensive. Amazon knows how to create a great user experience. They are kings of convenience and consumer orientation. Maybe they can transfer that from customers to patients and create a simpler, more affordable, system that’s responsive to real people’s needs and preferences. If so, sign me up (and I’ll even consider upgrading to Prime).
- This partnership trio — again, with Amazon out front — has a track record of disruption. I’ve written before how the most revolutionary ideas to transform health care are unlikely to come from traditional health care players. Industries rarely disrupt themselves. Travel agents did not create Expedia. The taxi industry did not create Uber. Sometimes it takes an outsider to create radical changes to the status quo.
- Like it or not, we live in a world ruled by big data. The recent Facebook scandal has demonstrated the excesses and abuses that can come with that. But health care increasingly relies on big data to manage population health, to identify high-value providers, to target interventions at complex patients, to create new payment arrangements, and so on. That Fitbit or Apple Watch you’re wearing: they are tiny data points in big data systems. This trio is adept at deploying big data and technology, which are big parts of health care’s future.
Time for a costume change into my skeptic’s hat:
- What does this trio know about health care? Not much, and I’m not bragging when I say that health care is a truly complicated industry. The regulatory and competitive barriers are substantial (although the same is true for the financial services industry, so JPMorgan Chase’s experience could be especially valuable in that area). Some new entrants came along in the wake of the Affordable Care Act and promised to disrupt health insurance as we knew it, but many of those have already flamed out or hemorrhaged money. More often than not, claims of disruption turn out to be mostly hype.
- Scale matters in every industry. Combined, the partnership trio employs about 1 million people scattered across multiple geographic markets. Presumably, their own workforce will serve as a testing laboratory for the new venture. That’s a good place to start, but it’s a small population in the scheme of things. If it goes no further than their own employees, I wouldn’t expect it to achieve much.
- The trio also needs to quickly grasp a fundamental fact about health care: costs are intensely concentrated. Just 5% of patients account for about 50% of health care spending; 20% of patients account for 80% of costs. A broad brush approach misses the point. And what works for employees of three large companies may not be scalable to the broader population. Amazon’s core customer, for example, is not the frail, medically complex, high-need patient that drives most of health care spending.
- Finally, many others have tried and failed to transform the health care system. The Health Transformation Alliance is group of employers who claim to have joined forces to “fix our broken healthcare system” but I bet you’ve never heard of them. Some big employers you have heard of — Walmart, Lowes, Boeing — have tried to steer their own workers in need of expensive cardiac care to preselected providers with prepackaged rates. The Caterpillar Corporation has cut down its pharmaceutical spending. While these efforts have produced some modest savings, they haven’t spread and changed the U.S. health care system.
Past isn’t always prologue, and three such large and powerful companies have never attempted to take on health care at this scale. It’s notable that their announcement made front-page news across the country and caused immediate drops in the stock prices of traditional health care companies. I’m curious to say the least about what this will turn out to be or not be, and I’ll wear my optimist’s hat for the time being. Our health care system needs transformation, and the industry itself and policymakers have yet to find the solutions. Maybe what it will take is a fresh perspective from the outside, looking in and fixing what ails us.
By David Sandman, President and CEO, New York State Health Foundation
Published in Medium on April 12, 2018