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11 Ways Amazon Could Transform Care

“Your margin is my opportunity.” – Jeff Bezos

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).

See also: Whiff of Market-Based Healthcare Change?

Three key facts potentially differentiate the ABC health initiative from past employer-led efforts:

  1. The strategic focus and attention of three of the most successful CEOs in America.
  2. Warren Buffett’s moral authority and trust, which will give the initiative a bully pulpit that can reach the general public.
  3. 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.

  1. New industry norms for benefits-purchasing transparency and conflicts disclosure will emerge
  2. Cybercrime fraud rates will drop dramatically
  3. Fraud awareness enabled by healthcare industry will trigger landscape-changing litigation
  4. Healthcare will stop stealing from retirement savings
  5. Healthcare will stop stealing millennials’ future
  6. Market clarity will show that employers are the real “insurance” companies
  7. A spotlight will shine on high rates of overtreatment and misdiagnosis
  8. Open source will come to healthcare
  9. Massive new capital restructuring opportunities will appear
  10. Primary care will experience a rebirth
  11. 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 rightsbenefits 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.

See also: Media Coverage on Amazon Misses Point  

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

How Amazon Could Disrupt Care (Part 1)

“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?

See also: 10 Mistakes Amazon Must Avoid in Health  

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 healthdiabetes managementpharmaciespharmacy benefit managementdigital 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.”

See also: Whiff of Market-Based Healthcare Change?  

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.

In Parts 2 and 3 of this series, I will explore what an Amazon inspired transformation in health care might look like and how Amazon is well-positioned to make it happen.

Whiff of Market-Based Healthcare Change?

Tuesday’s announcement about AmazonBerkshire Hathaway and JPMorgan (A/BH/JPM) was short on details. The three mega-firms will form an independent company that develops solutions, first, for their own companies’ health plans and then, almost certainly, for the larger health care marketplace. But the news reverberated throughout the healthcare industry as thoroughly as any in recent memory.

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.

See also: The Dawn of Digital Reinsurance  

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 unitU.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.

See also: How to Make Smart Devices More Secure

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.

Media Coverage on Amazon Misses Point

The coverage of the Amazon/Berkshire Hathaway/JPMorgan healthcare initiative has been universal, breathless and mostly superficial.

Scoffers, “experts” are gleefully predicting this attempt to do something really different will fail miserably, a victim of ignorance and hubris. While there are no guarantees, these naysayers ignore:

  • the three CEOS and their staff are brilliant, powerful, have almost unlimited resources and are very, very cognizant of the difficulties they face. These are as far from idealistic newbies as one could get.
  • the “competition” is pretty lousy, hasn’t delivered and has incentives that are NOT aligned with employers’. If the big health plan companies could have figured this out on their own, you wouldn’t be reading this.  It’s not like A/B/J are taking on Apple, Salesforce or the old GE.
  • the financial incentives are overwhelming; healthcare costs are more than $24,000 per family and heading inexorably higher. Unless A/B/J reduce and reverse this trend, they’ll have a lot less cash for future investments.

Many are also talking about “initiatives” that are little more than tweaks around the edges to address healthcare costs; things like:

  • publishing prices and outcomes for specific providers, a.k.a. “transparency” (My view – research clearly demonstrates consumers don’t pay attention to this information, so there’s no point)
  • using technology to monitor health conditions and prompt treatment/compliance (My view – lots of other companies are already doing this, and this is by no means transformational)
  • use buying power to negotiate prices (My view – it’s about a lot more than price; it’s about value)

See also: Is Insurance Like Buying Paper Towels?  

Here’s a few things A/B/J may end up doing:

  1. Own their own healthcare delivery assets (My view – Insourcing primary care, tying it all together with technology and owning a centralized, best-of-breed, tertiary care delivery center would allow for vastly better care, lower patient hassle and cost control)
  2. Buy healthcare on the basis of employee productivity (My view – Healthcare is perhaps the only purchase organizations make where there is no consideration of value – of what they get for their dollars. To the Bezoses, Dimons and Buffetts of the world, this is nonsensical at best. They will push for value-based care, defined as employee productivity)
  3. Build their own generic drug manufacturer (My view – No-brainer)
  4. Allow employees to go to any primary care provider they want but require them to go to Centers of Excellence for treatment of conditions that are high cost with high outcome variability (My view — No brainer)

I’d also expect many more large employers will join the coalition, for the simple reason that they have no other choice.

What does this mean for you?

Do not discount this effort.

Open Letter to Bezos, Buffett and Dimon

I applaud your announcement of a an organization designed to tackle what we believe is the greatest immediate threat to America — our status quo healthcare system. I have sent your healthcare leaders the new edition of my book, The CEO’s Guide to Restoring the American Dream – How to Deliver World Class Health Care to Your Employees at Half the Cost. This book draws on my decades as an insider in healthcare, first as an Accenture consultant working inside dozens of hospitals, followed by founding Microsoft’s $2 billion-plus healthcare platform business and more recently as a healthtech CEO (WebMD acquired my company). Since my departure from WebMD, my life’s work has been to find real-life, practical solutions to the root causes of our healthcare system’s dysfunction. Through this, I’ve found microcosms of employers everywhere that have already tackled the most challenging problems, restoring for them and their employees the American Dream that healthcare has stolen.

The great news is that every fix to healthcare’s structural problems has been invented, proven and modestly scaled. With your large employee base and bully pulpit, you are in a unique position to massively scale these fixes.

The wisest employers have found that the best way to slash healthcare costs is to improve benefits. We’ve found no company that has a better benefits package than Rosen Hotels, which spends 55% less per capita on health benefits than a typical company despite having a challenging workforce. For example, 56% of their employees’ pregnancies are categorized as high risk. I highlighted Rosen in my TEDx talk. They’ve invested money that otherwise would have been squandered in healthcare to provide free college to their employees, employees’ children and residents of a nearby neighborhood. Crime in that neighborhood plummeted 62%, and high school graduation rates soared from 45% to nearly 100%. The CEO’s Guide provides more details on what Rosen and many other smart employers are doing. For example, Pittsburgh-area schools, with a superior benefits plan, are spending 40% less than typical schools.

See also: 3 Innovation Lessons From Jeff Bezos  

There are many options to directly improve your employees’ health benefits while slashing costs. Hundreds of us have contributed to the Health Rosetta, which provides a blueprint for how to purchase healthcare services wisely. The Health Rosetta’s foundation is a set of guiding principles that leading thinkers ranging from Esther Dyson to Bill Gates have contributed to. If I were in your shoes, I’d start in the following places:

My book can be found on Amazon or downloaded for free.

  1. Send employees to Centers of Excellence for high-cost/complexity procedures: Typically, 6% to 8% of your employees consume 80% of spending in a given year. Large employers such as Lowes, Pepsico and Walmart have found stunning levels of misdiagnosis (25% to 67%) and overtreatment at low-value centers. For example, 40% of planned organ transplants diagnosed at community hospitals were deemed medically unnecessary after a second opinion from a high-value center such as the Mayo Clinic. Starbucks and Virginia Mason found that 90% of spinal procedures didn’t help at all and that the problems would have been better addressed via physical therapy. A large tire maker put in a proper musculoskeletal program for their employees and has already created nearly 2% of positive EBITA impact. 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-adding musculoskeletal procedures. [See Chapter 12 for more.]
  2. Lead the employer movement to avoid opioid overuse: Every addict needs an enabler. Having deeply studied the underlying drivers of the opioid crisis, I found that employers are the key (unwitting) enabler of the opioid crisis on 11 of the 12 major drivers. The overwhelming majority of those with opioid overuse disorders followed doctors orders, and their drugs were paid for by employers. Unlike other great public health crises, the opioid crisis can’t be solved without significant employer action. You can save money and keep your employees and dependents out of harm’s way by adopting a smart benefits approach. [See Chapter 20 for more.]
  3. Root out widespread criminal fraud: The Economist has called healthcare fraud the $272 billion swindle. More than 150 million health records have been hacked and are available for sale on the dark web. At a meeting with former HHS Secretary Tommy Thompson, I heard the stunning levels of fraud. One Fortune 250 company had more than 500,000 claims that were fraudulent (e.g., claims run 25 times and multiple claims for once-in-a-lifetime procedures such as a hysterectomy). In that room, one of the risk management practice leaders from a Big Four firm called the related ERISA fiduciary risk the largest undisclosed risk he’d seen in his career. The industry hasn’t adopted modern payment integrity software/algorithms for this readily fixable problem. [See Chapter 7 and 19 for more.]
  4. Ensure employees receive the highest-value drugs: Employers such as Caterpillar have taken matters into their own hands as the pharmaceutical supply chain has become rife with hard-to-follow rebates and other tactics designed to redistribute your profits to them. Caterpillar hasn’t seen healthcare spending increases in 10 years, primarily due to getting their pharmaceutical spending under control. [See Chapter 18 for more.]
  5. Establish value-based primary care foundation: As IBM found in a worldwide analysis of their $2 billion healthcare spending, it’s not possible to have a high-performance healthcare system without a proper primary care system in place. More than 90% of what people enter the healthcare system for can be addressed in a high-performance primary care setting (rare in the U.S.). Sadly, most U.S. primary care is like milk in the back of the store to get you to other high-margin and often low-value services. Not only can proper primary care go upstream to address issues before they flare up, it can help their patients navigate complex medical conditions. In fact, Amazon just hired Dr. Marty Levine, who was my parents’ doctor in a great Medicare Advantage program. Levine and his team have been invaluable in helping us navigate my father’s Parkinson’s journey. Based on what has transpired, I am certain that Levine’s team has saved taxpayers more than $200,000 in likely medical bills. This kind of care is not only outstanding, it more than pays for itself. [See Chapter 14 for more.]

See also: The Key to Digital Innovation Success  

The title of my TEDx talk was Healthcare Stole the American Dream – Here’s How We Take it Back. It’s great to see your leadership on this critical issue. The Health Rosetta community stands ready to help your efforts.


Dave Chase

P.S. We would also encourage you to adopt the Health Rosetta Plan Sponsor Bill of Rights (https://healthrosetta.org/plan-sponsor-bill-of-rights/). In light of your respective backgrounds in financial services, you are likely to be shocked by the lack of disclosure and conflicts of interest that are standard operating procedure in the vast majority of employer health plans. [See Appendix B for more.]