Amazon, JPMorgan, Berkshire Hathaway collaboration puts insurers ‘on notice’

Healthcare executives may need to hold on to their hats and prepare for a new trio of players making their entrance into the healthcare market.

Friend

Amazon, Berkshire Hathaway, and JPMorgan Chase & Co. are joining forces to address healthcare for their employees.

The initial focus of the new company, according to a news release, will be on technology solutions that will provide their U.S. employees and their families, and potentially all Americans, with simplified, high-quality and transparent healthcare at a reasonable cost.

While the companies have yet to release further details, industry analysts are already speculating about what the new company could entail and how it could affect the industry.

“Traditional health insurers are officially put on notice,” says David Friend, MD, MBA, chief transformation officer and managing director of The BDO Center for Healthcare Excellence & Innovation. “This move is three major players applying a start-up mindset to the entire healthcare ecosystem.”

Driscoll

John Driscoll, CEO of CareCentrix, agrees “Anyone with a high-cost, high-margin business has to be worried about this partnership,” Driscoll says. “There’s no question that these outsiders have a deep interest in providing higher quality care at lower costs to patients.

"From my perspective, the path to success is to partner with incumbents who have experience with the challenges of the industry and have the same goal of bending the cost curve, improving outcomes, with patient satisfaction as the focus," Driscoll says.

John Sarich, vice president of strategy at VUE Software, a firm that specializes in innovating and automating business processes for the insurance industry, says: “This could be the breakthrough in the impasse towards improving the system.

Sarich

"First, it’s always good to start with the understanding that we do enjoy the best healthcare on the planet. And, being the best, it is also likely the most expensive healthcare on the planet. The challenge is to keep the high quality and at the same time cut the costs,” Sarich says.

What the company could look like

These three companies are looking at improving group plans (employer sponsored), according to Sarich. “With the end of Obamacare, the real opportunity to effect disruptive change is in these employer plans. And, movement is under way.”

Marcia

Amazon has been headed for the prescription drug market for some time now, according to Peter Marcia, CEO of YouDecide, a voluntary benefits outsourcing firm that partners with Fortune 1000 companies to provide customized benefits for their employees. “With the acquisition of Whole Foods as a retail hub and its vast delivery expertise, this could be the flashpoint that could make this a reality,” Marcia says.

According to Friend, all three players bring something unique to the table that combine quite nicely with tackling healthcare problems.

“Amazon provides the technology along with access to more than 500,000 employees and their families, and 90 million Amazon Prime customers as potential members,” Friend says. “JPMorgan provides its massive dataset on its customers to Amazon, along with access to more than 200,000 employees and their families as potential customers. JPMorgan could also then market its insurance products to its millions of customers. Berkshire provides the balance sheet and access to nearly 400,000 employees and their families as potential members. The result could be an overnight insurance company with easily more than 1 million members with the potential to scale rapidly to others.”

The structure of this initiative could surface in one of many ways, according to Marcia. “It could initially ‘lease’ a delivery system that one of the existing healthcare plans already has and be branded with new, simpler plan features,” he says. “One would not be surprised if phase 2 of this new entity involves direct contracting with providers. It could also leverage existing programs such as the federal and state exchanges, breathing a new life into them and incorporating a ‘401(k)-itization’ approach of providing employees a set dollar amount to purchase coverage.”

This new program will probably have a strong focus on technology support tools to help the employee choose the best care by providing successful outcome data and transparent pricing, he adds. “With the lens on technology, access to medical providers via chat and internet may be a feature.  Amazon would have a strong influence on the direction of prescription drug pricing and delivery.”

Fisher

An aspect of the release that caught the eye of Matthew Fisher, partner at Mirick O'Connell, and chair of the firm's Health Law Group, is that it noted that the joint venture will allegedly not be formed for purposes of making money. More specifically, the release states that the companies will form an “independent company that is free from profit-making incentives and constraints.”

“That is not the same as creating a nonprofit,” he says. “Additionally, I would be very skeptical that a nonprofit is even a possibility because a nonprofit likely cannot be created to support and aid three for-profit companies.”

Julius W. Hobson, Jr., senior policy advisor at the law firm Polsinelli, is not surprised that this partnership materialized. “Healthcare costs have annually exceeded inflation for years. In 2015, healthcare was 18% of GDP. It should be no surprise, then, that large business corporations are combining to lower healthcare costs. The question is, why did it take so long?”

Next: Lower costs?

The partnership will certainly help lower annual increased healthcare costs, Hobson says. 

Hobson

“The new entity would cover about 900,000 employees worldwide. The volume alone will help cut costs. With a lesser incentive for profits, the new company can cut out middle entities, such as pharmacy benefit managers,” Hobson says. “Hospitals could contract directly with the new company. Initially, the company could buy drugs at a greater volume and demand lower prices. Later, it could manufacture generic drugs as a means for reducing costs. The announcement has already impacted the healthcare provider community. Insurer stock prices dropped immediately. Other market consolidations, such as the CVS-Aetna merger, can be expected.”

A fresh approach is exactly what the healthcare industry needs, says Mike Hough. executive vice president and North America branch founder of Advance Medical, a medical advocacy and expert medical opinion company.

“The major carriers-medical and pharmacy benefit managers-have a disincentive to disrupt the status quo,” Hough says. “Who do they serve? Beyond the shareholders, their major constituencies are their providers or the drug manufacturers."

How everyone will be affected

Hough

Amazon’s CEO Jeff Bezos, JP Morgan Chase chairman and CEO Jamie Dimon, and Berkshire Hathaway chairman and CEO Warren Buffett want to take on healthcare, and “have effectively unearthed the value of major industries by looking at things differently,” Hough says. 

“Our hope is that they find that efficiency first and foremost comes from delivering the right treatment for the right diagnosis,” Hough says. “Everything else-site of care, risk shifting, etc.-is a sideshow. If our caregivers had more time with patients, the overall quality improvement will drive down the cost. They also know how measurement is done, which is a perennial issue in healthcare. Not having a readmission or not having an infection is not how you measure a good outcome.” 

Hough believes that this is a strong win for employees. “The due diligence that has made Berkshire Hathaway and JPMorgan so successful in their fields demonstrates that whatever is delivered to employees will have been fully vetted,” he says. “[JP Morgan Chase’s] Jamie Dimon is a tenacious advocate for lower compensated employees as recently demonstrated by the announcement to use the federal tax overhaul to provide 10% increases to 22,000 workers and $750 cash bonus to be awarded to employees earning less than $60,000.”  

How will other healthcare companies be affected? Initially, Hough says they should be concerned since once a system is created “free from profit-making incentives and constraints” there is a huge risk to their business model. “Over time, this new company may provide the sentinel effect to other healthcare companies, making them stronger and perhaps providing healthy competition, maybe creating a gold standard of healthcare that has been so elusive in this country,” he says.

“This shake-up in the healthcare world underscores the need to embrace and develop voluntary benefits that can enhance the employee experience and provide additional flexibility and safety nets in the overall healthcare delivery system,” Hough says.

Tilenius

For starters, insurers need to be more aggressive about improving the consumer experience, their NPS (Net Promoter Score), and coming up with new health plan options that drive consumer engagement and lower costs, according to Stephanie Tilenius, former senior executive of PayPal, eBay, and Google, and current CEO of Vida, which provides digital therapeutics for patients with chronic ailments. “They can no longer sit back and wait to see what happens-they have to be more proactive and innovative than they've ever been.  Everybody needs skin in the game-consumers, employers, and payers. Incentives must be aligned for real change to take place.” 

“Payers have an opportunity to embrace partnerships with technology-forward health and wellness companies that would help them evolve their consumer experience and offer more continuous care at lower cost,” she adds. “They don't have to start from scratch or build in-house-technologies like telemedicine, real-time remote monitoring, and digital therapeutics have matured dramatically in the last couple of years. It's just a matter of being willing to adapt.”