The NY Times reports that the leaders of three prominent US companies (Jeff Bezos of Amazon, Warren Buffett of Berkshire Hathaway, and Jamie Dimon of JPMorgan Chase) are forming an independent healthcare company for their employees, with the ultimate goal of remaking the entire American healthcare system.
So we have three very smart guys with almost unlimited resources, setting a very noble goal. Best of luck to them.
It’s hard to know what these three corporate giants have in mind, but the tenor of the NY Times article seems to indicate they’re interested in using cutting-edge technology to streamline the flow of information within the healthcare system, thus improving efficiency and reducing costs.
This line of thinking is predicated on the idea that it’s inefficiency and waste (and of course, fraud) that is causing our runaway healthcare costs. But this is not correct. Most experts estimate that wasteful spending accounts for 25-35% of all healthcare spending. But that proportion has been fixed for at least a decade or two, if not longer. During that time, annual spending on healthcare has risen by 5-10% per year. Simple math tells us that this sustained rate of inflation cannot possibly be explained by a fixed proportion of waste. If somehow you are able to eliminate all wasteful spending, you’ll get an immediate 25% (or so) drop in costs — but then costs will continue rising by the same 5-10% per annum, and in a few years you’re back in the same place.
The rising costs of healthcare are actually due to expensive — and often effective — medical advances that are applicable to more and more patients. That is, healthcare inflation is caused by delivering actual healthcare to people. If you really want to cut costs, that’s what you need to reduce.
Insurance companies figured all this out 20 years ago. After enjoying their one-time savings from massive consolidation in the mid-late 1990s, they discovered to their great dismay that by the turn of the millennium their costs were rising by the same rate at which they were rising 10 years earlier.
The insurers responded in the only way they could. They’ve allowed incredible complexity, complete opacity, unnecessary hurdles, arbitrary restrictions, uninterpretable rules, turgid processes and procedures, reams of complex paper forms that change frequently, etc., to gum up the system as much as possible. As a result, it has become maximally difficult for patients to find and receive services, and for doctors to deliver them.
This outcome is not a bug or an unintended consequence waiting for a bunch of high-tech and financial gurus to come in and solve. It’s the only way the system has identified to attempt to limit costs. The inefficiency is designed into the system. (This lesson was well-known, of course, to the people who later designed Obamacare.)
Making it easier for appropriate patients to find the appropriate doctors and receive the services they need is a non-starter, as long as Americans insist that somebody else pay for all of it.
As smart and as rich as these three boys are, I do not think their new endeavor, if I understand it right, has much of a chance.