‘Disruptive’ New Healthcare Company: The Devil Will Be in the Details

By: Megan Cole Brahim Posted on: February 9, 2018 Topics: health care, viewpoint

thumbnail-man-with-boxesOn Tuesday, January 31, the hopeful and the skeptical tweeted. The stock market tumbled. We all speculated. And Amazon, Berkshire Hathaway, and JPMorgan Chase & Co. announced that they would partner to improve employee satisfaction with health care while reducing healthcare costs. 

But the details were scant, to say the least, which leaves it to us healthcare wonks to fill in the blanks. So here goes. To achieve the dual goals of increased approval and decreased cost, the new endeavor will need to really understand and address two issues: the drivers of high costs, and the barriers to optimal patient satisfaction.

First, cost. Nationwide, sharply rising deductibles, increasing premiums, and stagnant wages have led to higher out-of-pocket costs for individuals and families. High deductibles also mean that employees are more sensitive to and aware of the cost of care—a $3,000 MRI, a $300 monthly prescription, or a $150 charge for a five-minute office visit is much more palpable when you are directly footing the bill. Meanwhile, per capita costs within the private health insurance market continue to rise, and at a faster rate than public insurance.

It is a strong possibility that the companies will expand their role on the health plan side to assume a self-insured model where all or most administrative responsibilities are kept in-house, thus affording them more efficiency and control. However, to meaningfully reduce cost of care to employees without shifting more costs to the employer, this means that costs also need to be reduced on the delivery side of care. The equation is simple: Total cost equals volume times unit price, at least within our predominantly fee-for-service world.

Reducing the volume of low-value services would be an important step in reducing total volume. However, meaningful reductions could require substantial shifts in culture and occasional defiance of patient preferences, and thus may be difficult to achieve. And, while unnecessary utilization certainly contributes towards total spending, the US does not experience higher rates of healthcare use compared to other high-income countries (exception: diagnostic imaging). On the other hand, total healthcare spending per capita and price per service are substantially higher in the US than in other countries.

This brings us to price—which is to say, to reduce costs, they will also need to reduce unit price. This means fundamentally changing the way, or amount, in which services are reimbursed and providers are paid. Team Amazon-Berkshire-JPMorgan could use their market power to negotiate lower reimbursement rates with providers, but their size may still be insufficient if they wish to substantially lower costs in this way.

Alternatively, their strategy could mean purchasing their own provider groups to deliver care for less. However, the geographic dispersion of employees may not allow for such a model. They may also consider sending patients to low-cost centers for their high-cost procedures, where the cost of a plane ticket may be minimal compared to procedure costs. This may not be appealing to the average patient, though, especially not the sickest and least mobile, and would only be possible for planned hospital care.

Perhaps the most realistic cost-containment strategy is use of a value-based insurance plan, where patients are incentivized to use the highest value care within their network. This would directly disincentivize patients, rather than providers, from using low-value services. It could also include reference pricing to place limits on what the health plan would contribute towards a procedure (with the patient paying the difference if they select a higher-cost provider). Such focus on value better accounts for the two components of the cost equation, though it still operates within the context of our current pricing structures, which is not revolutionary.

Which takes us to patient satisfaction. This one is much easier, and where Amazon’s ability to innovate could potentially revolutionize the healthcare experience. Online platforms may make it easier for employees to select the doctor best suited for their needs through strategic use of big data. Available and transparent cost databases may allow employees to shop competitively for healthcare procedures. Increased use of e-communications and technology, including use of newly developed phone apps, may ease the burden of making doctors’ appointments or could negate the necessity of some in-person consultations. All prescription drugs could be delivered to your doorstep with free two-day shipping—or within hours thanks to drones. A “customer support” team of patient navigators may be available at the click of a button to answer clinical and cost-related questions 24 hours a day. Alexa could help with that.

All of this is exciting and very well could be carried forward in future employer-driven markets. But do these innovations move the needle on our “ballooning” healthcare costs? Probably not by much. The Amazon-Berkshire-JPMorgan effort would have to reconcile the fact that increasing patient satisfaction and reducing cost of care in a meaningful way are often not born out of the same efforts. In fact, research suggests that improved patient satisfaction may actually be associated with higher costs and worse outcomes.

Details aside, there are indeed ways in which this yet-to-be-known effort could revolutionize health care for the nearly 1 million employees of these companies. But even if the Amazon-Berkshire-JPMorgan endeavor is able to do so for their employees, it’s harder to imagine an approach that tackles national healthcare spending beyond the walls of these large employers. Across the US, 5 percent of patients account for more than 50 percent of health spending, but the highest-cost patients probably aren’t those employed by Amazon, Berkshire Hathaway, or JPMorgan. These patients are more likely to be sicker, have lower incomes, be older, and have social and economic needs that are systematically different than those in the employer-sponsored market. Lessons learned may not be transferrable outside of the employer-sponsored market, and other patient populations may be left behind. This could unintentionally contribute to increased health inequities.

Ultimately, the proposed endeavor may not be a silver bullet in solving America’s healthcare cost crisis, nor its equity problem. But it does provide an opportunity to test out innovative approaches that could work elsewhere, or at least within a relatively healthy, higher-income, employed population. Until we have more details, we are left with speculation, and hope, as to what that might look like.

Doctors’ offices inside Whole Foods stores, perhaps?

Megan Cole Brahim is an assistant professor of health law, policy & management.

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