JP Morgan Chase CEO Jamie Dimon seems poised to attack the rising costs of health care one way or another.
In April of this year, Dimon used his annual letter to shareholders to add to what we know about the Amazon, Berkshire & Chase joint healthcare venture. The 247 words about the joint venture comes amongst nineteen pages of public policy. In the other eighteen pages of public policy, Dimon wades into immigration, the national debt, the US relationship with China and infrastructure spending.
Most of Dimon's policy analyses are smart, centrist and seemingly poll-tested, suggesting a man considering making the jump from being CEO of the largest bank in the USA to being CEO of the USA. As noted in a previous column, Dimon is taking a more public role in the joint venture than his CEO colleagues.
In the initial press release, the troika promises that the joint venture will focus on technology solutions to provide "...U.S. employees and their families with simplified, high-quality and transparent healthcare at a reasonable cost." In an industry characterized by moving fast and breaking things, this startup has to be among the slowest to develop in the history of tech startups.
With Dimon's public profile on the joint venture and forward leaning public policy vision, one wonders how much of the joint venture is a business venture and how much is a plank on which Dimon can run for president in 2020.
With all that being said, we are going to focus on the six bullet points about the Amazon, Berkshire & Chase joint healthcare venture from Dimon's annual letter.
Following are the points, and my analysis of them.
Aligning Incentives
- Aligning incentives systemwide – the United States has the highest costs associated with the worst outcomes because we’re getting what we incentivize.
Very few actors in the healthcare sphere have an incentive to keep prices down. Healthcare providers inflate costs to assure they are paid fairly by health insurance carriers... and because they can.
Health insurance carriers have been accused of not sufficiently screening for fraudulent claims. Carriers get paid on a percentage of claims, so they have no incentive to do so.
Drug manufacturers spend billions on drug development, so their pricing reflects an incentive for a quick return on investment.
Pharmacy Benefit Managers (PBMs) make money by negotiating a low price from manufacturers and a high price from pharmacies. PBMs have an incentive to keep drug prices low when buying from manufacturers, but the retail price they set is high.
Creating an incentive for participants in the healthcare value chain to rein in costs would be a quantum leap for the American healthcare system. But this point seems to point to a more global reform of health care than just the employees of the three companies.
Waste, Administrative Costs, and Fraud
- Studying the extraordinary amount of money spent on waste, administration and fraud costs.
The fourth largest purchaser of healthcare in California is a not-for-profit organization that aggregates employers to help reduce their healthcare costs. This 501 (c)(9) data-mines millions of claims to find anomalies with the doctor/patient encounters. It estimates that at least 22% of the organization's doctor/patient encounters are fraudulent, an abuse of the system or the result of "churning," which is when a provider sees a patient more frequently than is medically necessary.
The problem of organizations like this does not lie in an inability to quantify the data. The problem is relatively simple to solve.
Carriers provide insufficient data to identify the doctor who performed the fraudulent procedure or the patient she performed it on - even to HIPAA compliant organizations. Without this information, inappropriate and fraudulent care continues and grows.
If the healthcare troika can focus on increasing transparency, every consumer of health care wins.
Empowering Employees
- Empowering employees to make better choices and have the best options available by owning their own healthcare data with access to excellent telemedicine options, where more consumer-driven health initiatives can help.
While consumer health transparency is important, it may not be the best method for driving down health care costs.
Sixty-nine percent of Americans don't balance their checkbooks. Balancing a checkbook is relatively simple math. In this light, expecting Americans to study the complex US healthcare system seems unrealistic.
Websites that currently venture into the space of consumers reviewing doctors don't yield very helpful information. Quality measurements speak of wait times for appointments, the degree to which the doctor and his staff were friendly and whether the waiting room had a place for their kids to play.
Post-operative infection rates and other indications of quality healthcare delivery (whether patients live or die) are typically not mentioned on Yelp! or healthgrades.com.
Allowing group purchasers, like the Amazon, Berkshire & Chase joint venture, access to pricing and quality measurements would make a real difference. Experts with a fiduciary relationship to the insured can develop plans that drive the employees to the best quality care for the lowest price.
Wellness Programs
- Developing better wellness programs, particularly around obesity and smoking – they account for approximately 25% of chronic diseases (e.g., cancer, stroke, heart disease and depression).
Healthy lifestyle choices typically lead to better health outcomes. Many organizations are using data-mining techniques to identify at-risk members and intervene using social workers. However, even HIPAA compliant organizations have difficulty getting the necessary claims information from carriers. More transparency is needed to make this effective.
Looking at Costly Medicine
- Determining why costly and specialized medicine and pharmaceuticals are frequently over- and under-utilized.
At least five players in the pharmaceutical industrial complex get a cut of what consumers pay for their medication: Manufacturers, wholesalers, pharmacy benefit managers (PBMs), retail pharmacies, and insurance carriers.
Amazon, with its core competency of logistics, could take over the drug wholesalers' link in the chain. But wholesalers only see about one to three percent of the prescription drug spend. Not a lot of room to make a difference.
With 2.8 million employees and dependents, Amazon, Berkshire & Chase have more lives potentially under their care than the population of thirteen states. Yet they still don't have the purchasing power to compete with PBMs, which set retail drug prices for some 266 million Americans.
End-of-Life Care
- Examining the extraordinary amount of money spent on end-of-life care, often unwanted.
This may be another example of Dimon looking at public policy more broadly rather than being focused on specific savings to the three companies.
About 80% of the 2.6 million people who died in America in 2016 were on Medicare. Studying the growth of Medicare and the accompanying impact on the national debt is an existential issue for America.
However, it is unclear how end-of-life spending directly impacts the healthcare of Amazon, Berkshire & Chase employees.
Amazon, Berkshire & Chase or Chasing Trump?
Dimon's fleshing out of the joint venture hits a lot of the right notes. However, many of his points are more global and less focused on the employees of the three companies than the initial press release indicated. Further, Dimon's solutions skew towards public policy, rather than the tech-related solutions promised in the January press release.
Whatever the motivation and however Amazon, Berkshire & Chase come to implement them, these ideas have the potential to transform the health care industry.
