The potential value of such innovations is not lost on those inside the healthcare sector. Many startups and large healthcare organizations are already working hard to adapt and adopt them. (See, for example, my articles on diabetes prevention, Boomers and how to shape the future of connected health). Here are some of the advantages that Amazon brings to this challenge.
Amazon can start with a clean sheet of paper. Unlike those inside the current healthcare system, Amazon doesn’t have existing customers to placate, legacy systems to update or business models to protect. A fundamental disconnect in healthcare is that the patient is not the customer, so helping customers doesn’t necessarily benefit patients (or vice versa). In this case, Amazon and its partners are the customers. And, because the potential patients are employees, Amazon can leverage strong existing connections, relationships and overlapping interests.
Amazon brings differentiated capabilities and experience. While many talented people in healthcare are working on the same capabilities, few can match Amazon’s technical expertise and practical experience. Amazon’s expertise in social networking, mobile devices, user experience, the Internet of Things and artificial intelligence are extremely relevant to healthcare. Its existing platforms, like its Alexa-enabled devices and AWS cloud platform, will, no doubt, also come into play.
Amazon doesn’t have to make money. Innovators in healthcare have to worry about revenues and reimbursement, usually from insurance. With deep pockets and the potential to recoup cost through savings, Amazon has great flexibility to experiment without such concerns. Indeed, the alliance declared itself to be “free from profit-making incentives and constraints.”
While its initial focus is on reducing cost and improving satisfaction for its 1.2 million employees, the alliance is not shy about wanting to create solutions relevant to all Americans. Doing so would serve two other incentives for Amazon to think big about its healthcare innovation.
Healthcare could enable synergies with Amazon’s other businesses. As I’ve previously observed, Amazon approaches competition as a no-holds-barred battle for tighter customer relationships and ever-larger share of customer wallets. It is hard to find a bigger untapped market category than healthcare through which to grow Prime membership. In addition, because mobile devices, AI and cloud-based platforms and services have become synonymous with the future of healthcare, it is likely that Amazon can find business synergies in those areas, as well.
There is a massive $3.2 trillion healthcare market to enter. Industry valuations tremble at the whisper of Amazon’s interest in healthcare for a good reason, as has happened to pharmacies, benefit managers and health insurers. That’s because investors know that there are deep pockets of inefficiencies and unnecessary complexity in healthcare that, in turn, offer real market opportunities for Amazon. For example, one analyst estimates that just pharmacy benefits management (PBM) business is a $25 billion to $50 billion market opportunity. Amazon had already been rumored to be building an internal PBM capability for its employees. Adding Berkshire Hathaway and JPMorgan employees into that mix would be another step closer to launching a market-facing business.
Forbes.com contributor Dan Munro is pessimistic. He describes the overall effort as an exercise in “Fantasy Health Care.” At the heart of the problem, he writes, are big systemic flaws that the alliance cannot address. What’s more, Munro argues that the alliance “is not remotely novel or innovative, and the historical evidence is clear that it certainly won’t disrupt health care.”
Rather than partaking in a fantasy, I think Jeff Bezos offered a cleared-eye view of the challenge in the alliance announcement:
The health care system is complex, and we enter into this challenge open-eyed about the degree of difficulty. Hard as it might be, reducing healthcare’s burden on the economy while improving outcomes for employees and their families would be worth the effort. Success is going to require talented experts, a beginner’s mind and a long-term orientation.
For my part, I’ll take an optimistic point of view. The problem is big and hairy, and I applaud the audacious effort to take it on. Let’s remember: Innovation is always hard and more often than not fails—and that’s why the rewards are great for those with the audacity to try and the chops to succeed.
In Part 1 of this series, I argued that Amazon is the critical ingredient in making its health care alliance with Berkshire Hathaway and JPMorgan Chase successful—even though previous employer alliances have failed to make a dent in healthcare costs.
Here’s a quick glimpse of how Amazon’s consumer focus, technological prowess, operational efficiency, strategic patience and successful history of turning internal solutions into platforms for new businesses might accelerate the long-needed transformation of healthcare.
To imagine how Amazon could transform healthcare, first look at five capabilities that it has brought to retail:
Comprehensive customer records. My first order at Amazon was for “The Act of Creation” by Arthur Koestler on Dec. 8, 1997. The details of that order, and all the other 1,337 orders I’ve placed in the intervening years, is accessible to me on my Amazon account page.
Personalized content and user experience. Amazon has integrated personalization and recommendations throughout my customer experience, from the first point of touch through checkout. Everything it shows me is based on my past purchases, shopping cart items, browsing history and the behavior of other customers like me. Some analysts estimate that 35% of Amazon sales are generated by its recommendation engine.
Price transparency and choice. Not only does Amazon lead me to relevant products, it provides full transparency on price, shipping and handling. It also makes it easy for me to choose between a wide range of sellers.
Quality reviews. Amazon helps me to gauge quality of products and sellers by facilitating reviews from its own editors, a curated network of external reviewers and other customers. This very public feedback loop also creates an incentive for sellers to address quality issues.
Stellar execution and customer satisfaction. Amazon has ranked as the best in customer satisfaction in the Internet Retail category for 16 out of the last 17 years. It consistently ranks among the highest-rated of any company across every industry category.
These capabilities enable a virtuous cycle of better information, lower prices, higher customer satisfaction and more customers. They’ve also become standard operating practice in many industries—but not in healthcare. Now imagine the impact of accelerating their adoption in healthcare.
Imagine having patient health data with complete longitudinal information and intelligent analytics at every point of care. That is far from the case today. Medical records are stored in silos and, even when electronic, are hard to create, maintain, use or integrate. A Rand study found that physicians are very dissatisfied with electronic medical records because of poor usability, time-consuming data entry, interference with face-to-face patient care, inefficient and less fulfilling work content, inability to exchange health information and degradation of clinical documentation.
Imagine having personalized health pages with intelligible information, recommendations and dashboards based on a comprehensive view of a patient’s health history, condition and provider interactions. The personal page could consolidate and monitor biometric data, chronic conditions, acute ailments, medications, care plans, symptoms and other patient-specific critical data. It could integrate data from sensors and apps. It could intelligently collect patient feedback on critical symptoms based on specific conditions, providing behavioral nudges or alerting care teams as needed.
Imagine having a comprehensive view of cost options for needed treatments or medications—and intelligent assistance in choosing among them? Today, it is almost impossible for a patient or a physician to know the cost for a given test or procedure. Rates can vary tremendously based on where the service is provided, what kind of insurance the patient has, how the services are coded and numerous other factors. This makes informed recommendations and choices impossible. A report by the Robert Wood Johnson Foundation named price transparency as the single biggest factor for controlling healthcare costs.
Imagine a single source for trustworthy quality ratings of hospitals, physicians and other healthcare providers. Today, there is a mountain of quality data from federal agencies, health plans, state governments, patients and others who report on the performance of hospitals and physicians. But, there are no agreed-upon standards for what information should be reported, its accuracy and the underlying data that support it. One group of researchers noted that many quality-reporting efforts “appear to be led by marketing departments that are not aware of appropriate scientific standards.”
Imagine healthcare customer satisfaction rising to Amazon-like levels.
The potential value of these capabilities is not lost on those inside the healthcare sector. Many startups and large healthcare organizations are already working hard to adapt and adopt them. But, Amazon brings distinct advantages to the challenge.
I’ll explore those advantages and how Amazon might tackle health care transformation in Part 3.
Amazon has proven again and again that Bezos and team can bring fundamental change to multiple industries. Adding one of the world’s most respected and trusted business figures in Warren Buffett and the leader of one of the largest financial institutions who pulled it through the 2008 financial crisis in Jamie Dimon, and healthcare’s long overdue overhaul may be upon us. Not since I wrote Health Insurance’s Bunker Buster nearly eight years ago have I seen anything that has the potential to bring a brighter future for all Americans.
In this article, I refer to my book, The CEO’s Guide to Restoring the American Dream. You can get it on Amazon or download it for free here. For simplicity, I’ll refer to the Amazon-Berkshire Hathaway-JP Morgan Chase as “ABC.”
The slide below is a very rough breakdown of where each dollar in the U.S. healthcare system goes. Shockingly little makes its way to the value-creators—primarily nurses, doctors and other clinicians. As I laid out earlier in 10 Mistakes Amazon, Berkshire Hathaway and J.P. Morgan Must Avoid to Make a Dent in Healthcare, conventional employer-led efforts have failed to change healthcare. Few would call Bezos, Buffett or Dimon conventional thinkers, and they collectively bring more weight than most of the world’s developed economies. Given that the U.S. healthcare industry would be tied with Germany as the 4th largest economy in the world, the potential of their influence becomes clear.
The benefits from tackling the extraordinary fraud, waste and abuse in our healthcare system is why employers can and are doing it. More importantly, the collective successes have already created a guiding framework for all healthcare purchasers—private or public. We call this framework the Health Rosetta, but we’re just aggregating these successes. Baked into virtually every U.S. healthcare industry business model is that employers are what healthcare pundit and author Matthew Holt calls “dumb price takers.” Most readily pay 2X-10x more than market-clearing prices. Chapter 6, PPO Networks Deliver Value—and Other Flawed Assumptions Crushing Your Bottom Line, spells out how this happens. I will spell out below how ABC could tackle the healthcare tapeworm (Warren Buffett’s term for the negative impact of healthcare on the U.S. economy).
Three key facts potentially differentiate the ABC health initiative from past employer-led efforts:
The strategic focus and attention of three of the most successful CEOs in America.
Warren Buffett’s moral authority and trust, which will give the initiative a bully pulpit that can reach the general public.
Amazon and J.P. Morgan Chase’s technology, financial structuring, and data prowess, which can be applied to root out fraud, waste and abuse, create new care pathways and produce new revenue and financing models.
The following points riff off the line from The CEO’s Guide that people tell me most resonates with them—You’re in the healthcare business whether you like it or not. Here’s how to make it thrive. In other words, when ABC applies the same discipline to healthcare that they apply to every other area, modeling the path for other employers, everything will change. Below are 11 ways the ABC initiative could forever change the U.S. healthcare system, followed by a summary treatment of each point.
New industry norms for benefits-purchasing transparency and conflicts disclosure will emerge
Cybercrime fraud rates will drop dramatically
Fraud awareness enabled by healthcare industry will trigger landscape-changing litigation
Healthcare will stop stealing from retirement savings
Healthcare will stop stealing millennials’ future
Market clarity will show that employers are the real “insurance” companies
A spotlight will shine on high rates of overtreatment and misdiagnosis
Open source will come to healthcare
Massive new capital restructuring opportunities will appear
Primary care will experience a rebirth
There will be a focus on going local to go national
Now that you know where we’re going, let’s dive into each point.
1. New industry norms for benefits purchasing transparency and conflicts disclosure will emerge
The ABC leaders each have deep financial services expertise where meaningful disclosure of compensation and conflicts of interest is deeply embedded both legally and culturally. As they dig in, I would expect them to conclude that new norms are needed in this space, such as what we’ve developed for the Health Rosetta plan sponsor bill of rights, benefits adviser code of conduct and disclosure standards. These are “motherhood and apple pie” concepts that are a 180-degree change from current industry norms, where benefits brokers often sit on both sides of a transactions with significant undisclosed conflicts.
2. Cybercrime fraud rates will drop dramatically
The same sort of algorithms that identify fraud in credit cards can be applied to healthcare, but haven’t been. Simple-to-detect fraud like a single claim being paid 25 times to cybercriminals (a real and all-too-common occurrence that modern payment integrity services find) will be the low-hanging fruit, but these have not been broadly applied. ABC will also see that this blatant fraud is just the tip of the fraud, waste and abuse iceberg. As a bonus, a leader in payment integrity is one of the earliest adopters of Amazon’s AWS cloud service.
3. Fraud awareness enabled by healthcare industry will trigger landscape-changing litigation
Even though cybercrime is only the tip of the iceberg on fraud, waste and abuse, it is so blatant that it is already spurring legal activity. In Chapter 19 of my book, I quote a Big Four risk management practice leader who said, “ERISA fiduciary risk is the largest undisclosed risk I’ve seen in my career.” There are two areas of legal jeopardy that are snapping CEOs to attention as they get awakened to the risk. Chapter 7, Criminal Fraud is Much Bigger Than You Think, is just the basics on ERISA fiduciary risk, but it is so blatant that there are dozens of cases in the works. An additional thread of fiduciary legal front is emerging—activist shareholders are realizing how straightforward it is to improve earnings by slaying the healthcare cost beast.
The Health Rosetta website has a simple estimator that translates removal of healthcare waste into EBITDA impact. Here is just one example of the impact. A multinational manufacturer implemented a proper musculoskeletal management program by having physical therapists working with employees and workplace ergonomics. The savings (if applied directly to EBITDA) from this alone create a positive $2 billion of market cap impact (calculate savings x price-earnings multiple).
4. Healthcare will stop stealing from retirement savings
Healthcare has crushed the average boomer’s retirement savings by $1 million. Even if this estimate is off by 10x (unlikely), it’s still $7.6 trillion that could have been under management by financial firms such as JP Morgan. My senior level contacts in the 401k/retirement segment surprised me when they said that government de-privatizing of retirement (due to low savings levels) is on the worry list of folks like Jamie Dimon. If true, it is another reason organizations like JPMorgan Chase would want to redirect money being squandered in healthcare to retirement accounts.
5. Healthcare will stop stealing millennials’ future
David Goldhill’s outstanding Catastrophic Care book gave an “optimistic” view of how healthcare is on track to consume half of a typical millennial’s lifetime earnings. He assumed that healthcare costs grew at half the rate of regular inflation (extremely rare—more typically, it’s 5% to 10%). As the largest generation in history, millennials are the most important generation for all of the ABC organizations. Smart employers find they are natural early adopters of Health Rosetta-type benefits programs. [See Chapter 4, Millennials Will Revolutionize Health Benefits]
6. Market clarity will show that employers are the real “insurance” companies
This is the health plan industry’s worst nightmare. There is a growing realization that because less than a third of the claims that insurance companies process actually put the insurance companies’ money at risk, “insurance” companies are more appropriately described as commoditize-able claims processors. It is self-evident that paying a third party to manage risk when they benefit from rising costs hasn’t worked out well. The smart BUCAs already understand this, which is why you see some aggressively diversifying out of the insurance business. They are happy to milk the insurance business until it goes away, but their corporate development actions clearly signal the future. For example, I heard Aetna CEO Mark Bertolini say at a Health 2.0 conference that they increasingly see themselves as a technology company with insurance on the side. [See Chapter 3, What You Don’t Know About the Pressures and Constraints Facing Insurance Executives Costs You Dearly]
7. A spotlight will fall on high rates of overtreatment and misdiagnosis
ABC’s leadership will see past studies such as the Starbucks/Virginia Mason study that found that 90% of spinal procedures did not help at all. They will also be shocked to find extraordinary rates of misdiagnosis across healthcare, like what I outline in Chapter 12, Centers of Excellence: a Golden Opportunity. They will want to ensure their employees get the best possible care, which also saves tremendous money. It’s commonly known that ~50% of what we do to people in healthcare does not make them better and could make them worse. One of the foremost experts in employer benefits, Brian Klepper, estimates that 2% of the entire U.S. economy is tied up in non-evidence-based, non-value-added musculoskeletal procedures.
8. Open source will come to healthcare
As much as companies such as Amazon keep some information and code proprietary, they also actively benefit from open source. Open source software underpins major parts of Amazon’s business. Some problems are too big to tackle on your own. As big as ABC are, they aren’t big enough to tackle all of healthcare, and they don’t have dominant market share in any single geography.
Because adoption happens so slowly in healthcare, Health Rosetta is catalyzing the creation of a Wikipedia-like resource for the next 100 years of health (a group of visionary doctors call their vision Health 3.0) to dramatically accelerate the rate of adoption for successful approaches. Those insights will benefit ABC.
In the other direction, ABC should be motivated to share what they are doing with other local employers to more rapidly change norms in a given healthcare market. While the Fair Trade-like model for healthcare transactions we’re working on is non-controversial outside of healthcare, ABC can add heft and use their bully pulpit to normalize more appropriate behavior in this area. For example, legitimate, known pricing (link to a petition by a former hospital CEO) versus the arguably predatory and arbitrary pricing today would still let healthcare providers set their prices (i.e., not government-set), but pricing would be consistent and known across all payers.
One Health Rosetta component—Transparent Open Networks—already enables this. In other words, healthcare transactions could operate like every other part of the economy. Single pricing is a subtle, but critical, part of making healthcare functional. Not tackling this would be one of the biggest mistakes ABC could make.
9. Massive new capital restructuring opportunities will appear
This item could be an entire white paper, but I’ll touch on just two opportunities stemming from the above items. Hundreds of billions of dollars (if not more) have been and are being tied up in fraud, waste and abuse. As large purchasers and others begin to account for this, a subset of it can be treated as bad debt and turned into instruments that are sold to opportunistic, sophisticated investors. The subsequent collection efforts by these purchasers would be dramatic to any person or organization enabling the fraud. Second, it is well known that we have at least 40% overcapacity of hospital beds, fueled by a massive revenue bond bubble. The orderly disposition and restructuring of these assets is another massive opportunity that can be accelerated by the work of ABC and others. Outside of rural settings that have few overcapacity issues, evidence shows that hospital closings have no impact on outcomes. Freakonomics did a segment on how health outcomes actually improved when hospital cardiologists were away at a conference. This horrific story about a typical overtreatment scenario leading to bad outcomes is another example of why this would be the case.
10. Primary care will experience a rebirth
I detailed the critical reasons why ABC must have a strong primary care foundation in my open letter to Jeff Bezos, Warren Buffett and Jamie Dimon. Just based on the number of employees ABC has, it makes economic sense to fund ~1,500 value-based primary care clinics. They can derisk this investment by making the clinics available to ABC partners and customers. I wasn’t surprised that ABC recently hired my parents’ primary care physician, who has deep experience in a vanguard value-based primary care organization. [See Chapter 14 for more on value-based primary care]
11. There will be a focus on going local to go national
From Facebook to Uber and Lyft, the best way to go national with something game-changing is to start with a hyperlocal focus. This lets you prove unit economics in a controllable environment. Despite conventional wisdom, the future health ecosystem will be local, open and independent, which provides anti-fragility versus easy-to-destroy monoliths. I often draw an analogy between the Health Rosetta and LEED for many reasons. One is that certain locales were early adopters of LEED. Likewise, certain geographies will abandon the current, silly medical facility arms race.
For example, Portland, OR, is an early adopter of LEED, and it has grown a cluster of sustainable industries by attracting talent and businesses to the area. Over the last year, I have been gathering feedback on creating a competition like Google Fiber or Amazon HQ2 competitions to identify communities where the new health ecosystem forms.
Beyond the obvious benefits of defining and pioneering the next century of health, solving the opioid crisis is a profound imperative. As I pointed out in Chapter 20: The Opioid Crisis: Employers Have the Antidote, the largest public health crisis in 100 years has major employer/economic implications and is simply impossible to solve without active employer involvement. The sad fact is that every addict needs an enabler, and employers have been the biggest (unwitting) enabler in 11 of the 12 major drivers of the crisis. The silver lining is that solving the opioid crisis takes you a long way toward solving broader healthcare dysfunction. Employers implementing Health Rosetta-type benefits have much lower rates of opioid overuse disorders due to the upstream “antidotes” to the crisis.
In short, ABC has the power to demonstrate that employer health benefits are the newspaper classifieds of transforming the healthcare business
Healthcare has many analogies with another industry that has been dominated by regional monopolies/oligopolies—newspapers. Like employer health benefits, the classifieds business was very easy to overlook. However, in both cases, they drove a significant majority of profits for newspapers. Once the classifieds business was undermined, the newspaper industry was never the same. If the ABC initiative plays its cards right, they can catalyze restoring the American Dream for millions of Americans by fixing healthcare. The great news is that there are many microcosms in America where the best healthcare system in the world exists — far more affordable and effective than we’re used to. ABC has the opportunity to help America leapfrog the rest of the world and finally have a truly superior and efficient healthcare system.
“You can always count on Americans to do the right thing – after they’ve tried everything else.” – Winston Churchill
“The ballooning cost of healthcare acts as a hungry tapeworm on the American economy.” That’s how Warren Buffett framed the context as he, Jeff Bezos and Jamie Dimon announced the alliance of their firms, Berkshire Hathaway, Amazon and JPMorgan Chase, to address healthcare.
The problem is serious. Healthcare costs in the U.S. have been growing faster than inflation for more than three decades. There is little relief in sight. A Willis Towers Watson study found that U.S. employers expect their healthcare costs to increase by 5.5% in 2018, up from a 4.6% increase in 2017. The study projects an average national cost per employee of $12,850. The three companies have a combined workforce of 1.2 million. Based on the Willis Towers Watson estimate, they could spend more than $15 billion on employee healthcare this year.
But, what can the alliance do about it? On that, Buffett was less clear: “Our group does not come to this problem with answers. But, we also do not accept it is inevitable.”
The challenge is formidable. As the New York Times noted, employers have banded together before to address healthcare costs and failed to make much of a dent in spending. How will this effort be different?
If this alliance as simply another employer purchasing cooperative, it will probably have little effect. Neither 1.2 million employees nor $15 billion in spending is all that significant in a 300 million-person, $3.2 trillion U.S. healthcare market. The alliance might nudge the healthcare industry toward incrementally faster, better and cheaper innovations—but not much more.
If, however, the alliance thinks big and structures itself as a test bed for potentially transformative ideas, innovations and businesses, it could have a disruptive effect.
Amazon is the critical ingredient in this latter approach. Although all three companies bring employees and resources (both critical), only Amazon brings particularly relevant technological prowess and disruptive innovation experience.
Amazon could think big by simply applying the standard operating principles and capabilities that it has perfected for retail—comprehensive data, personalization, price and quality transparency, operational excellence, consumer focus and high satisfaction—to healthcare. It also has differentiated technologies like Alexa, mobile devices, cloud (AWS) and AI expertise. It could leverage its recent years of healthcare-specific exploration, such as those in cardiovascular health, diabetes management, pharmacies, pharmacy benefit management, digital health and other healthcare research. It could use Whole Foods as a physical point of presence.
Amazon could then start small and learn fast. It could crunch the numbers and come up with large enough interesting employee segments for experimentation. For example, it might focus on improving quality and satisfaction for the sickest 1% to 2% of employees. It might focus on those with hypertension or diabetes. It might focus on helping those undergoing specific treatments, such as orthopedics or cancer. It might focus on preventing the rise of chronic diseases in those at most risk, such as those with prediabetes or uncontrolled hypertension. It might focus on narrow but high-impact issues, like price transparency or prescription adherence. Issues in privacy would have be addressed, but there are many opportunities to address well-known but as-yet-unsolved problems in healthcare.
By first focusing on the quality, satisfaction and cost for the alliance’s employees, Amazon could justify its efforts through increased employee productivity and satisfaction and reduced cost. Indeed, the alliance emphasized that it its effort was “free from profit-making incentives and constraints.”
That doesn’t mean, however, that profits are not possible in the future. Amazon built its AWS cloud computing business by first solving an internal problem in a plug-compatible, low-cost and scalable manner, and then bringing it to the market. That business-building approach would provide an additional incentive that goes beyond cost-cutting: a new business platform for Amazon, an enormous investment opportunity for Berkshire and (despite short-term consternation to existing clients) investment banking opportunities for JPMorgan.
There is something far more interesting about the Amazon, Berkshire and JPMorgan Chase (let’s call them ABC) than the 1 million-plus lives they employ. There have been similar initiatives announced before along with countless business group on health coalitions that have made no meaningful dent in the wildly underperforming status quo healthcare system. The BUCAs (Blues United Cigna Aetna) have been adept at fighting off efforts like these. But this time, I predict it will be different. In this piece, I will explain why past efforts have failed. In a follow-on piece, I’ll explain why the ABC health initiative has great potential to be very unlike past employer-led efforts.
No focus on healthcare industry business practices: As my business partner, a securities attorney with various securities licenses, often points out: Practices that are standard in healthcare would land him in jail in financial services. The staggering level of conflicts of interest and lack of disclosure is why the Health Rosetta community crowd-sourced the Plan Sponsor Bill of Rights (“plan sponsor” is a fancy term for employer/healthcare purchaser), Benefits Advisor Code of Conduct and Benefits Advisor Disclosure Form to establish new industry norms. Past efforts didn’t seek to change industry norms. As long as these practices persist, there will be little change.
No sustained CEO-level champion: This translates into a lack of organizational backbone. One analysis of a past failed employer-led effort said, “The lack of available data has long prevented employers from figuring out where their biggest expenditures were coming from.” There is no freaking way Amazon CEO Jeff Bezos would accept that. It is a common trope for the BUCAs to say that the claims data they process for self-insured employers (roughly two-thirds of the workforce) is proprietary to the BUCA. That’s laughable on its face, but most employers back down despite the absurdity of that claim. Clearly Bezos and Berkshire CEO Warren Buffett have shown they are long-term-oriented for strategic initiatives.
BUCA fiduciary duty has trumped employer fiduciary duty: As a BUCA executive put it to me, “We (BUCA) are legally required to enable price gouging by hospitals.” I outlined the reasons why in Chapter 3 of my book, What You Don’t Know about the Pressures and Constraints Facing Insurance Executives Costs You Dearly. This dynamic is in direct conflict with employers’ fiduciary duty as I outlined in Chapter 19 of my book, where I quoted a Big Four risk management practice leader, “ERISA Fiduciary Risk is the Largest Undisclosed Risk I’ve Seen in my Career.” There are two areas of legal jeopardy that are now snapping CEOs to attention. Chapter 7, Criminal Fraud is Much Bigger Than You Think, is just the tip of the iceberg on ERISA fiduciary risk, but it is so blatant that we’ve heard dozens of cases in the works triggered by the lack of oversight. An additional thread of fiduciary legal front is emerging — activist shareholders are realizing how straightforward it is to slay the healthcare cost beast and improve earnings. Sadly, for many corporations, the only thing that spurs action is a legal target on their back. There is a simple calculator that translates removal of healthcare waste into market cap impact. Here’s one example of something that has already happened: A multinational manufacturer simply implemented one proper musculoskeletal management program by having physical therapists working with employees and workplace ergonomics. This is translating into $2 billion of market cap impact (calculate savings times price-earnings multiple). One of the foremost experts in employer benefits, Brian Klepper, estimates that 2% of the entire U.S. economy is tied up in non-evidence-based, non-value-add musculoskeletal procedures. [See Chapter 12, Centers of Excellence a Golden Opportunity, for more]
Coalitions co-opted: Too many business coalitions on health are supported by limited funding from employers, so they seek sponsorship from the very players whose business imperative is to redistribute money from employers to the healthcare industry incumbents. The people running these coalitions typically walk on eggshells trying to avoid offending their sponsors, and nothing substantive changes. Some have meaningful revenue streams from incumbents that largely perpetuate the status quo at a slightly better price.
Threats of business reprisal: I’ve heard of many instances where a BUCA threatens an employer’s revenue. BUCAs book lots of hotel rooms, buy lots of computer hardware, etc. Any effort to rein the BUCA in is fought furiously. Often the CEO of the employer isn’t even aware that it has happened. The risk-averse HR/benefits leader simply backs down out of fear there will be internal blowback for jeopardizing revenue, and the dysfunction persists. The message that CEOs implicitly or explicitly send to HR/benefits leaders is, “Keep our people happy and don’t get us sued.” In other words, a guarantee of risk aversion.
Employer groups keep their “deals” proprietary: Classic short-term thinking. The employer may gain some short-term advantage and can claim a “win,” but the overall market they operate in remains unchanged. It is a key part of BUCAs’ divide-and-conquer strategy. Even a huge employer normally has a small usage share in a given market, so their impact is muted when the BUCA holds their deal terms proprietary rather than establish new market norms available to all employers.
Lack of rethinking of healthcare payment and delivery: Most so-called innovation in healthcare is the equivalent of trying to optimize oil lamp technology to get better lighting in homes and cities. Or, putting recycling bins in a coal plant and calling it “green energy.” The healthcare system has become a Gordian Knot designed by Rube Goldberg built up over the last 100 years. Those of us working on the Health Rosetta blueprint and Health 3.0 vision recognize that it is time for a reset. That approach has allowed smart employers to spend 20% to 40% less per capita with superior benefits and outcomes.
Primary care ignored: As I pointed out in the open letter mentioned above, you can’t have a functioning healthcare system without proper primary care. Primary care has been brutally undermined. To the extent there has been focus on primary care, it has been to pile some niceties on top of a fundamentally flawed model. As one primary care innovator put it, putting wings on a car doesn’t make it an airplane. Having written the seminal paper (summary, detailed) on direct primary care (DPC) five years ago, I find it striking how few benefits professionals have heard of DPC, let alone adopted it. Value-based primary care couldn’t be more different than the drive-by, hamster wheel primary care that has become the dysfunctional norm.
Lack of supply chain mindset: Most employer-led efforts have not rolled up their sleeves because they are working on the mistaken assumption that healthcare is too complicated to tackle themselves. That is only true if you do not apply the proper resources. As a single company, Caterpillar applied a supply chain mindset (something Amazon has in spades) to their drug spending and fired middlemen who were not adding value. Seemingly every company says employees are their most important asset. Considering that health benefits are typically the second biggest cost after payroll, why wouldn’t a company want to ensure they get the greatest payback by carefully managing their healthcare supply chain? In Chapter 9, You Run a Health Care Business Whether You Like it or Not, I detailed how IBM’s mindset shift had the dual benefit of lower healthcare costs and a high-performance workforce.
Lack of moral standing: Past employer efforts have not articulated a compelling reason that clearly benefits the best interests of the public and their employees. Rather, past initiatives were easy to perceive as antiseptic corporate blather meant to enhance their bottom line. Thus, it is easy to position the employer as the bad guy. For example, as I pointed out in my open letter to Bezos, Buffett and JP Morgan CEO Jamie Dimon, employers are the key enabler of the opioid crisis. Thus, it can’t be fixed without a major shift by employers (see Chapter 20, The Opioid Crisis: Employers Have the Antidote). Facing the largest public health crisis in 100 years, there is a moral imperative to address this situation. Taking leadership on this issue solves an internal issue (no doubt, ABC employees are afflicted with opioid overuse disorders at the same rate as the general public) while tackling a much broader societal issue.
In all of the case studies in my book, the employers treated their employees like adults and explained what was going on at a macro (see the “bigger bite” graph) and micro level to explain how they wanted to ensure their teams could achieve the American Dream. Successful employers point out that healthcare is blocking the American Dream for 60% of the workforce. The math simply doesn’t work: 60% of the workforce makes less than $20 per hour, and the average family of four premiums are $26,000; in addition, greater than 50% of households have less than $1,000 in savings (largely due to healthcare costs), and more than 50% of the workforce has over a $1,000 deductible.
In the follow-on piece, I’ll outline how the ABC health initiative has the potential to have as big an impact on U.S. healthcare as the Affordable Care Act. I leave you with a quote and a slide from a presentation I gave recently that will give a preview of the opportunities available for this new initiative. Note how little of every dollar goes to the value creators in healthcare.