“The ballooning cost of health care acts as a hungry tapeworm on the American economy.” That’s how Warren Buffett framed the context as he, Jeff Bezos and Jamie Dimon announced the alliance of their firms, Berkshire Hathaway, Amazon and JPMorgan Chase, to address health care.
The problem is serious. Health care costs in the U.S. have been growing faster than inflation for more than three decades. There is little relief in sight. A Willis Towers Watson study found that U.S. employers expect their health care costs to increase by 5.5% in 2018, up from a 4.6% increase in 2017. The study projects an average national cost per employee of $12,850. The three companies have a combined workforce of 1.2 million. Based on the Willis Towers Watson estimate, they could spend more than $15 billion on employee health care this year.
But, what can the alliance do about it? On that, Buffett was less clear: “Our group does not come to this problem with answers. But, we also do not accept it is inevitable,” he said.
The challenge is formidable. As the New York Times noted, employers have banded together before to address health care costs and failed to make much of a dent in health care spending. How will this effort be different?
If this alliance as simply another employer purchasing cooperative, it will probably have little effect. Neither 1.2 million employees nor $15 billion in spending is all that significant in a 300M person, $3.2 trillion US health care market. It might nudge the health care industry towards incrementally faster, better and cheaper health care innovations—but not much more.
If, however, the alliance thinks big and structures itself as a testbed for potentially transformative ideas, innovations and businesses, it could have a disruptive effect.
Amazon is the critical ingredient in this latter approach. While all three companies bring employees and resources (both critical), only Amazon brings particularly relevant technological prowess and disruptive innovation experience.
Amazon could think big by simply applying the standard operating principles and capabilities that is has perfected for retail—comprehensive data, personalization, price and quality transparency, operational excellence, consumer focus and high satisfaction—to health care. It also has differentiated technologies like Alexa, mobile devices, cloud (AWS) and AI expertise. It could leverage its recent years of health-care-specific exploration, such as those in cardiovascular health, diabetes management, pharmacies, pharmacy benefit management, digital health and other health care research. It could use Whole Foods as a physical point of presence.
Amazon could then start small and learn fast. It could crunch the numbers and come up with large enough interesting employee segments for experimentation. For example, it might focus on improving quality and satisfaction for the sickest 1-2% of employees. It might focus on those with hypertension or diabetes. It might focus on helping those undergoing specific treatments, such as orthopedics or cancer. It might focus on preventing the rise of chronic diseases in those at most risk, such as those with prediabetes or uncontrolled hypertension. It might focus on narrow but high impact issues, like price transparency or prescription adherence. Issues in privacy would have be addressed but there are many opportunities to address well-known but as yet unsolved problems in health care.
That doesn’t mean, however, that profits are not possible in the future. Amazon built its AWS cloud computing business by first solving an internal problem in a plug compatible, low cost and scalable manner, and then bringing it to the market. That business building approach would provide an additional incentive that goes beyond cost cutting: a new business platform for Amazon, an enormous investment opportunity for Berkshire and (despite short term consternation to existing clients) investment banking opportunities for JPMorgan.
In Parts 2 and 3 of this series, I will explore what an Amazon inspired transformation in health care might look like and how Amazon is well-positioned to make it happen.