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Bezos, Buffett, and Dimon to the Rescue
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.
Published in Healthcare
Our medical data is at risk for abuse now. Just wait until these three get hold of it.
I see this as a venture to first reduce healthcare costs within their own existing ventures, and then leverage that model and their IT expertise to worm their way into providing information services for the overall healthcare market. I don’t see how it would change actual health care beyond serving in an auxiliary (and profitable) way.
I agree with this. Question for you, @DrRich: Products in most industries eventually become cheaper as newer technologies/advances emerge. Why is this not happening in healthcare? Are advances so rapid that older methods/products are simply obsolete?
I suppose it’s possible that high-tech efficiencies, when applied to the relatively young, relatively healthy, relatively motivated, relatively tech-savvy and relatively sophisticated individuals likely to be employed by these companies, may indeed result in some cost savings. However, how well this model could be leveraged — translated over to the older, fatter, more sedentary, &c., people who actually account for most of the healthcare spending in the US, seems extremely doubtful.
But, as Pilli suggests, perhaps that’s not really the goal. If, by demonstrating some level of cost savings on their employee population, they convince us to give them access to everyone’s health records, then the Newco would be very successful indeed.
Pilli says: “Our medical data is at risk for abuse now. Just wait until these three get hold of it.”
This is a legitimate point. Perhaps these three are not deceiving themselves that their new company will identify the real keys to healthcare efficiency and cost savings. Perhaps all that kind of talk is a red herring. Perhaps they do just want access to a few hundred million Americans’ health records. Even I (a simple country cardiologist) could figure out how to make a lot of money with that.
The reasons for this are complex, but one poorly-recognized reason — when it comes to medical procedures and medical devices, at least — are cost controls. Medicare sets reimbursement levels for thousands of these services, ostensibly to keep costs down. But they function in the opposite direction too — they keep reimbursements at that established level. So when a new iteration of a medical device or procedure is made more efficient, the profit margin automatically rises. When margins rise, doctors and companies work hard to expand the indications for these services. Medicare does try to update reimbursement levels to account for this, but (surprise!) they are terrible at doing so, and are habitually behind the curve.
This is just one example, a relatively minor one. But it illustrates how, no matter what the regulators implement to keep costs down, innovators innovate according to the resultant incentives, thereby maintaining if not increasing spending. As I said in my post, many of these innovations are medically useful, and not entirely fortuitously.
When financial incentives are determined by something other than a fairly direct transaction between the supplier and the user of any service, money soon changes hands in very exotic and unpredictable ways, with layers of interposed third parties joining in the fun. Pretty soon no single human being can understand a typical hospital bill, let alone how some new regulation will impact healthcare spending.
I still think we need to be consumers who make choices. I would like to be able to decide whether to have the procedure with 99.5 percent success rate at the cost of bankrupting my family vs the one with 96.0 percent success rate that will allow the family to remain solvent.
The left will tell us it’s a terrible idea for people to make choices, that they don’t have the necessary information at hand. There is truth in that. When I was studying the alternatives for prostate cancer I found that I just couldn’t work up enough interest to study the choices as thoroughly as some other people on the Usenet newsgroup on this topic did. And I have a background in biology that sometimes helps me understand some of these things a little quicker. But medical topics can be boring, and I couldn’t let myself be consumed by it. I did a combination of reading, internet research, and listening to others, rejected alternatives that didn’t make sense, and made the easy choice: Go for broke, and use the hotshot, prima donna surgeon in my plan who was the best available within driving distance, because insurance was paying for it. I’ve worked with prima donnas most of my working life and I don’t mind their arrogant ways so long as they really are good. And this one was. But if more of my own money was at stake, I would certainly have taken that into account.
What can force a reckoning with the real costs of comprehensive and best-practices healthcare, other than a complete collapse of the insurance industry?
Is there any hope that government will cease to cover their losses? Any hope politicians will stop lying to citizens that everyone can afford everything?
I totally agree with your assessment (as I always have so far). I’m only suggesting that they might be preparing to bear the mantle when a desperate America grasps at any potential solution to the failing healthcare system.
Can I be so bold as to say they are so far in over their heads in not knowing how to do such a thing that they may not care if it fails.
Hear me out on this one, and I’m not ascribing malice to their intentions per se. But let’s say they go all in on this venture, and it collapses. All three are big government proponents. They will beg the government to bail them out and the talking point will be “if we three titans of private industry can’t do this, we need the government”
If it succeed they get all the money and data leading this “private” charge
Given that no society can possibly pay collectively for every bit of healthcare that might be potentially useful for every individual within that society, attempting to avoid fiscal collapse requires rationing. Rationing can be done openly (as in Canada and Great Britain), or covertly (as it is done here).
Covert rationing is based on deception, which demands maximum opacity and extreme complexity (which, ironically, maximizes inefficiency), so people can tell themselves that whatever it is that’s going on, it’s not rationing.
Progressives need the insurance companies to serve as a foil, so there’s somebody to blame when we peons occasionally notice the maddening inefficiencies inherent with covert rationing. This requires our Progressive leaders to prop up the insurance industry, which I believe they will do until the bitter end.
Real solutions will become possible only when our political leaders conclude that we will not pillory them for acknowledging the unavoidable need to ration the healthcare we pay for collectively. But we Americans have now concluded that healthcare is a right, so we’re a long way from that.
Here’s a plan for these three:
You make a good point, which is, if the new Amachaseaway healthcare company fails, that will be another powerful argument for a single-payer healthcare system. And while a lot of Progressives in the Bernie Sanders wing want that very badly, I continue to believe that the less irrational Progressives greatly value the availability of the evil health insurance industry as a foil. Since Obamacare has converted the insurance industry to a public utility, they have ultimate control over it, so it’s still really a government-controlled system.
I agree that single-payer healthcare is the ultimate goal, but Progressives continue to need somebody to blame whenever things go south (such as, for instance, when some troublemakers notice the rationing), and the propped-up insurance companies fill that bill.
This plan could work. The sticking point would be item 1.
If these three very rich outfits were willing to purchase, say, the Mayo Clinic or the Cleveland Clinic outright (with all the facilities and all the personnel), and entirely remove them from the current healthcare system, that might do the trick. But even then, you’d still have a behemoth (the Amachaseaway company) standing between providers and patients.
This as much as anything infuriates me… doubly because it happened without complaint from Republicans. Conservative commentary was not clear that a private industry had just been seized by government… and just a few years after the “bailout” in which government defied laws regarding compensation of investors while seizing a different industry.
“All within the state, nothing outside the state, nothing against the state.” –Mussolini
It’s a wonder the oil industry is still nominally independent (after regulations and drill-zone allowances).
Perfect analysis in every way and a critical reason why I am abandoning the profession for a year to see if I really want to do the job. There are other ways to make money without anywhere near the headache.
If I could line up past and present insurance co execs and beat them senseless I’d be complete as a person. Life’s mission accomplished. The level of animosity I have for that industry is immense. Pure slime without an ounce of humanity. I’m glad for the thousands upon thousands of times I’ve lied to them to help my patients.
My daughter would be a brilliant physician but why in the world would I subject her to this horrible mess of a job.
I’m not familiar with the beliefs of these three men, but a common line of thinking in parts of the “tech” community I keep seeing is that the Internet will magically enable us to do things that failed previously and spectacularly under Soviet-style central planning. Under this line of thinking, the Soviets failed because they could only update the math on the Five Year Plan once a month because their computers just weren’t good enough yet. If the Soviet Union had better computers, they could make central planning work, because Wal-Mart uses computers to make decisions with great success.
Well, replace “Wal-Mart” with this magic health insurance company that these three men are making and you have a new argument for single payer, we just magically replace their money with taxpayer money and we can expect the same success, because smartphones.
If they’re the ones with the money, they can make rules… maybe permitting elective surgeries on offshore hospital ships? Repurposed oil platforms?
Make the rules yes , but will talent, I mean real medical talent, prefer their yoke to the governement’s? I suspect that talent won’t be needed under their model though. Cost controls etc will necessitate mediocrity.
Or hiring some of the Indian, Chinese, etc. folks who cater to medical tourists…
Well, I never said my plan was practical. More of a fantasy, in fact. That said, it seems to me that the involvement of third parties (government & insurance) is a big part of the problem. Maybe the root cause???
BTW – Should’ve opened my comment with “Another good post.”
I read a great book a few years ago about innovation at the Mayo Clinic: Think Big, Start Small, Move Fast. The biggest challenge the Mayo Clinic has had in dealing with the reduced reimbursement rates brought about by the Obama administration’s healthcare reform measures has been coming up with the right mix of patient care given by actual doctors versus patient care given by the doctors’ proxies such as physicians’ assistants. Some of the solutions they’ve been experimenting with are off-site satellite clinics and a modified version of concierge medicine.
In these experimental projects, the biggest stumbling block has been ensuring remote access to their healthcare services. I’m guessing that’s where Jeff Bezos comes in to this market. Delivery has always been his focus as well.
That drone at your front door is your doctor calling. :) :)
Can you do all that in just one year?
I’m betting that with minimal effort Doc could recruit significant help for the task.
This thread assumes that the approach would be to operate essentially within the current system that exists- and that is going to crash at some point, sooner or later. I don’t worry about the Medicare time bomb (“In 75 years Medicare will cost 12 times as much as the whole Federal budget in then-year dollars!”). As Herb Stein said, if something can’t continue on like this, it won’t.
US health care operates right now roughly the same as personal computers did in 1987- remember when you had two disk drives, and called the Microsoft Help line every time you hit a glitch with Windows? The only reason that health care works today as it does is that the incumbents are making piles of money off of the system by keeping competition away, be it pharmas manipulating FDA rules to maintain exclusivity of generic drugs, hospitals merging and using the “certificate of need” process, or doctors using licensing and medical societies to eliminate cheap alternatives. The insurers are just skimming 8% off the top here- it is the rest of the gang that creates the high cost basis.
Medical practice consists of three key elements: 1) collecting all the relevant information (includes interrogatories and sensors); 2) making decisions and judgements based on the information (diagnostics and medications prescription), and 3) performing skilled procedures as a result of #2. In a world of powerful data, cheaper information processing (including artificial intelligence), and robotics, only the most complex and subjective elements of #1 and #2 above will require skilled and knowledgeable practitioners, and #3 will be subject to international competition.
Are you betting that Bezos can’t figure that out? He will set up a surgery center in Barbados staffed by the best Indian and Pakistani surgeons and lease seats on budget airlines to transport his employees there for non-emergency procedures. And so on- the data element is most useful, and there are myriad non-intrusive ways to solve the problem using limited data sets (LDS; it is a legal term defined by HIPAA and HITECH privacy law) that do not compromise anyone’s privacy.
Democrats want government control, and single payer- but Republicans want to protect doctors (look at how many MDs are GoP Congresspersons- if you think that is an accident, or intended to break market fetters, I have some laetrile to sell you for your pancreatic cancer, guaranteed to work….) and big bidness hospital chains. There are not many free markets/competition enthusiasts anywhere in the power structures.
Great comment, but I confess it saddens me a bit. There are some things some American doctors have done in their communities that are not computerized, mechanized, etc. One of the best doctors I ever met personally was a respected, highly skilled surgeon in city where I lived. I was fortunate enough to have him operate on me for two non-elective procedures that had me pretty scared. I remember coming out of anesthesia the first procedure, moving my hand slightly in the fog and asking, “Did you get it?” That man reached down, grasped my hand firmly, squeezed, and said, “Yes, all of it. You’re going to be fine.” And I was, then and after pathology confirmed his opinion. Nothing can replace the care of a healer you trust.
I entirely agree with your analysis. The current healthcare system has largely stifled the kinds of transformations and disruptions that are now feasible with modern technology. Every player in the system has participated in this stifling, as they all have so much to lose by the new paradigm such technology implies.
And perhaps your prediction of the solution is also correct — some smort and rich guys redesigning the system top-down to take advantage of some of this new technology, bypassing or marginalizing layers of current players.
In my view that is unlikely to work, as the current players (doctors, insurers, industry and government) have too many levers to pull to prevent this from happening, and for all of them, preventing it is a matter of life and death.
I see a solution that is more difficult to achieve, but much harder to stifle, that is, a bottom-up solution. To cut the Gordian knot, use the new technology to provide individuals with the ability to accomplish your key elements 1 and 2. Once people who desperately want to regain their own health are able to decide for themselves exactly what they need and when they need it, it will become difficult (hopefully impossible, in the long run) for any central authority to entirely suppress the competition among those who desperately want to fill those needs.
Rich, I agree that this is difficult, particularly because of the licensing and other levers that current providers have. But that is only in the US- just as public education is having its non-competitive foundations (too) slowly eaten away by things like home schooling, etc. , the ability to internationally end-run the US restrictions due to technology and foreign availability will slowly dissolve the current oligopolies. For example, if a Native American tribe were to declare its special sovereignty status as the basis for setting up its own medical licensing boards, and open up Buffet-Bezos-funded clinics on their sites, how would the BIA, under pressure from bought-and-paid-for Republicans in Congress be able to politically shoot them down?
Every issue is responsive to technology and the money to deploy it- and these guys know how to work it. Other national companies would sign on fast, with the ERISA health care approach (relief from state mandates) as the precedent.
Things would speed up, of course, if free markets enthusiasts would expose the donor-bought hypocrisy of our side as much as we decry the single-payer nonsense pushed by the Left.
And I completely agree with your bottom-up ideas- those are enabled by the same factors, and in fact helped by the corporate attentions. It is like people going to Canadian on-line pharmacies to buy branded, out-of-patent drugs.
It’s not just the competition that’s suppressed. Any free market solution requires accurate data. One important piece of the puzzle is open source science. Show the [expletive] data. Publish the negative results. For drugs submitted for FDA approval, the negative studies are in the FDA’s files. Publish them.