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Why the New Amazon, JP Morgan & Berkshire Hathaway Partnership is Important for Health Care

The health care world was handed notice last month that it is firmly in the crosshairs of three leading global companies—Amazon, JP Morgan, and Berkshire Hathaway.  The new organization that will emerge from this fearsome triumvirate is currently a mystery, but we know enough about the current state of health care in the U.S., that it isn’t surprising that these major business groups are eager to create a health care company for their American employees. Other businesses, both within and outside the health care industry, are closely watching how this develops in anticipation of a new, more efficient model for corporate operations.

Trends in Health Care

The Current State of U.S. Health Care

In 2016, the U.S. spent almost $3.4 trillion (about 17.8 percent of total gross domestic product) on health care, and this is expected to grow steadily to reach $5.5 trillion, or 19.9 percent of GDP, by 2025.  This unchecked surge in health care inflation will far outpace general inflation and the growth of the U.S. economy, producing huge obstacles to fiscal solvency and business growth.

The primary reason that health care is such an enormous drain on public and private resources is that the system is hugely inefficient.  Almost a quarter of all medical fees goes towards billing and administration.  Most health care organizations have oversized staff that are there to figure out who is paying and how much.  Most other nations usually have a much simpler payment system in which the government is responsible for fees.

This inefficiency also manifests in other ways.  Most health care professionals and organizations typically charge much more than their counterparts in other nations.  Partially, this is due to the system of capitalism that runs strong in the U.S., but it is also a side effect of the byzantine pricing system in modern American health care. Because medical providers charge different payers different fees for the same product, they rarely disclose those costs. This hidden charge system allows them to demand exorbitant fees without much of an outcry from the public that would likely ensue if other industries tried similar practices.

Finally, there is little or no competition in the health care industry.  Most providers may set their own prices and dictate to insurers and consumers because of their enormous market share.  Since the advent of the Affordable Care Act, companies in the health care sector have engaged in a frenzy of mergers in order to consolidate power and limit competition.

Trends in Health Care

Although the woeful state of health care would probably be sufficient to invite outside disruptors to develop their own health care organizations, there are also some impending changes that make this involvement even more attractive. At the heart of these trends is the movement away from a fee-for-service (FFS) business model that promotes as many services per patient towards a value-based health care model that prioritizes optimal patient care for every dollar spent.

Already leading U.S. companies have reengineered their current health plans in an effort to maximize employee health while maintaining a reasonable cost structure.  Businesses with sizable employee populations (100 or more) are realizing that they can produce their own health plan partnerships with top-notch providers and pay a fraction of what they currently are to insurers.  Cutting out unnecessary middle men not only lowers administrative costs, but also allows employers to deliver better care to workers.

Another important trend in the health care industry is the move to smart technologies. These emerging tools like 3D printing, companion diagnostics and synthetic biology should make medicine more precise and potent while simultaneously driving costs lower. Perhaps more importantly, is the rapid propagation of technologies that maintain the health of employees outside of the hospital or doctor’s office.  These hi-tech services should enable medical providers to monitor patient health almost continuously, allowing them to identify health concerns as they develop.  This dovetails with an early detection and intervention model that keeps overall costs low.

Doctor With Medical Healthcare
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A final factor that appears to have played a role in this new initiative is the ongoing paralysis in Washington, D.C.  Although the Obama administration put a great deal of effort into health care reform and produced the Affordable Care Act, which, arguably, did help tamp down health care prices for a few years, the current administration seems incapable of making any headway on the issue.  Last year, Congress was almost fully devoted to repealing the ACA without passage of a repeal or a replacement for the law. With health care costs rising once more, the business community is eager for changes whether they come from the government or private interests.

What Could Be Ahead

There are no firm details on what the new Amazon/Berkshire Hathaway/JPMorgan Chase partnership will produce, but what is apparent is that all three organizations are committed to creating a more efficient, patient-centric health care system. Much of the business community is optimistic that this new initiative could push innovation in a poorly functioning industry that wastes far too much and provides too little to consumers.

Although Amazon is widely recognized as a disruptor in the field of retail, both Berkshire Hathaway and JPMorgan Chase have built their fortunes on recognizing weaknesses in business systems and developing profitable solutions.  This powerhouse of a partnership is likely to focus on new and emerging technologies as the platform for streamlining care delivery and optimization.  Amazon is almost the premier business paradigm for technology-based innovation, and many industry analysts predict that if they can successfully apply those principles to health care, this new project could revolutionize how Americans access medical care.

When this success arrives is unknown. Although all three companies are committed to the project that is likely to focus on care for the million employees at all three, at the moment, there is merely an agenda instead of any detailed objectives. Hopefully, success will come soon, otherwise, the American economy could languish amidst rising health care costs.

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