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February 1, 2018

Amazon-Berkshire-JPMorgan's venture: Reactions from 3 health system CEOs and other industry leaders

Daily Briefing

    Many health care industry observers are skeptical that Amazon, Berkshire Hathaway, and JPMorgan Chase will "disrupt" health care with a partnership they announced Tuesday—but dissenting voices say the "opportunities are enormous," and some providers expressed optimism about the partnership.

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    Company details

    The three companies on Tuesday said they plan to launch a health care company for their 1.2 million U.S. employees.

    The three companies released limited information about the new partnership, but they said the goal will be to improve employee satisfaction with health care and reduce health care costs. The company will focus initially on "technology solutions" that would provide "simplified, high-quality, and transparent health care at a reasonable cost." The three companies said the new health care company will be "free from profit-making incentives and constraints."

    The announcement led to a dip in health care stocks in early trading Tuesday. Several major insurers and pharmacy benefits managers saw shares drop.

    Experts skeptical

    At this point, many industry observers are raising doubts about whether the companies will have a measurable effect on health care costs—at least for the health care system at large, Margot Sanger-Katz and Reed Abelson report for the New York Times', "The Upshot."

    Several experts have pointed out that the trio is not the first to seek novel ways to lower costs and improve quality. And for the most part, experts noted, previous endeavors haven't yielded major change.

    For instance, Google and Microsoft have both tried to innovate in health care but haven't produced big results, Sanger-Katz and Abelson write.

    Larry Levitt, SVP for health reform at the Kaiser Family Foundation, said, "We've seen so many employer coalitions trying to leverage their purchasing power. Those tend to go nowhere in really addressing the fundamental health care cost growth."

    Moreover, the dynamics that enable disruption in other sectors don't usually exist in health care, Sanger-Katz and Abelson report. In other sectors, disruptors make inroads by offering a product that's lower in quality but also significantly cheaper. While consumers might be willing to settle for a lower-quality car, they're less likely to opt for inferior health care, according to Sanger-Katz and Abelson.

    Others have pointed out that the three companies behind the endeavors lack direct experience providing health insurance or services. According to "The Upshot," none have done significant work in managing doctors, hospitals, or pharmaceutical companies.

    Leemore Dafny, a professor at Harvard Business School, said, "Just because you know an industry is underperforming and you have a lot of money doesn't mean you have a successful strategy."

    Craig Garthwaite, a professor at Northwestern University's Kellogg School of Business, in a tweet noted the three companies' "initial statements about technology and coordination suggest a view of the world that high costs are about pure inefficiency," which "seems at odds with evidence from ACO literature to date—where savings come firms incentivized to avoid low value care."

    Garthwaite added the new venture is "not going to transform the economy unless they then share all of those ideas and best practices with their competitors." He continued, "That would not be good for long-term shareholder value for their firms."

    But some see potential for change

    While many observers have expressed skepticism about the partnership, others believe the companies are well-positioned to make change.

    Ashish Jha, a physician and health policy researcher at the Harvard T.H. Chan School of Public Health, tweeted, "A lot of very smart people are skeptical about the new Amazon/JPM/Berkshire endeavor. I'm much more bullish: Amazon know[s] consumers. Opportunities are enormous. You don't need to solve everything to change the market."

    Similarly, Elizabeth Mitchell, CEO of the Network for Regional Healthcare Improvement, said, "These businesses understand customer service. Reorienting health care to being customer focused is exactly what is needed and will require massive and overdue change."

    John Driscoll, CEO of health benefit-management company CareCentrix, said, "Anyone with a high-cost, high-margin business has to be worried about this partnership." He added, "There's no question that these outsiders have a deep interest in providing higher quality care at lower costs to patients."

    Providers weigh in

    Several health system leaders spoke favorably of the partnership's potential in comments to Modern Healthcare.

    William Conway, CEO of Henry Ford Medical Group and EVP of Henry Ford Health System, said, "I think many providers would welcome this. The tapeworm is the outrageous administrative costs of health care in the U.S. and the expense of all the middle services."

    Julie Taylor, CEO of Alaska Regional Hospital, said, "I welcome their involvement and hope they find opportunities that those of us from within the industry may have overlooked. Fresh eyes, fresh perspectives. More power to them!"

    However, Ronald Paulus, president and CEO of Mission Health, noted the practical challenges that lie ahead for the new venture. He said, "The issue is that none of these 'disruptions' address the fundamental challenges: We are paid below actual costs for Medicare, Medicaid, and the uninsured; more Americans are uninsured now than last year; bad debt is rising as ever higher deductibles and copays are simply not paid and so on" (Sanger-Katz/Abelson, "The Upshot," New York Times, 1/30; Thielking, STAT News, 1/30; Japsen, Forbes, 1/31; Demko, Politico, 1/30; Kacik/Livingston, Modern Healthcare, 1/30; Modern Healthcare, 1/30; Herman, Axios, 1/31).

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