How Amazon, JPMorgan, Berkshire could transform American health care

Nathan Bomey | USA TODAY

Show Caption Hide Caption Amazon, Berkshire Hathaway, JPMorgan create new health care company A new powerhouse collaboration between Amazon, Berkshire Hathaway and JPMorgan is looking to bring affordable health care to their U.S.-based employees. Nathan Rousseau Smith (@FantasticMrNate) has the story.

The burgeoning collaboration between Amazon, JPMorgan Chase and Berkshire Hathaway seeking to transform the American health care system is long on ambition and short on details.

By their own admission, the companies are stepping up to the plate without much experience playing the game, which could easily translate into a swift strikeout.

But they're already being taken seriously — and for good reason.

With two of the world’s three richest people leading the charge – Amazon CEO Jeff Bezos and Berkshire CEO Warren Buffett – as well as JPMorgan Chase CEO Jamie Dimon, the newly minted coalition is hoping to lower health care costs for the companies' employees and deliver significant advancements for all patients.

The challenge is monumental. Health care spending represented 17.9% of the U.S. economy in 2016, totaling about $10,348 per person, and continues to rise, according to the U.S. Centers for Medicare & Medicaid Services.

Based on their past accomplishments, how might the alliance leaders tackle what Buffett called "a hungry tapeworm on the American economy”?

Any prediction about the alliance’s plans must glean insight from Amazon’s success, which has been based on removing entire layers of product sales and distribution and adopting new ways of thinking. That's caused massive disruption in the retail and tech industries.

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With retail, Bezos refused to travel the well-worn path established by leaders in the business. Victims that failed to adapt, such as bookstore chain Borders, are gone. Others, such as Sears, are teetering.

The lesson for health care? The system you know today won’t necessarily exist in its current form for much longer if Bezos, Buffett and Dimon get their way.

To shake up health care, “it takes bold thinking on the part of thought leaders who are willing to go out there and stake a claim that they will be able to do something grand,” said Jean Abraham, a health care administration professor at the University of Minnesota and former senior economist on health issues for the White House Council of Economic Advisers.

Momentum building

One sign the new alliance is building momentum is that more companies are interested in joining them.

The Health Transformation Alliance, which was formed in 2015 by American Express, Macy’s, Verizon and Caterpillar, hailed the new coalition’s formation. Since its creation, the Health Transformation Alliance has added a few dozen additional members, including JPMorgan Chase and one of Berkshire’s subsidiaries, BNSF Railway.

“We are interested in exploring ways we can work together, and I trust that we will,” says Rob Andrews, CEO of the alliance.

Perhaps the biggest key to the coalition leaders’ strategy is their disavowal of profit motives. The new company they plan to establish will not seek to profit off of health care, unlike the industry’s leading for-profit insurers, drug makers and many health care providers.

“Bezos and Buffett very much understand playing the long game instead of the drive for quarterly earnings — and that’s essential in trying to solve the problems in health care,” says Verrill Dana attorney James Roosevelt, Jr., who previously served as CEO of Tufts Health Plan and chair of insurance trade association America’s Health Insurance Plans.

Experts say the alliance will likely focus on several key areas:

Slashing bureaucracy

What if the only way to lower health care costs is to slash the number of people in the industry — or at least reduce the rate of job growth?

The industry employed about 12.4 million people as of 2015, according to the Bureau of Labor Statistics. That’s eight times more jobs than the total U.S. workforce of Walmart.

Amazon has not been shy about pursuing technological innovation to transform the retail industry, gadgetry, Web services and shipping. Its dalliance with drone delivery, for example, could yield a big shift in package distribution, eventually leading to lower prices for consumers.

The parallels in health care could include a move toward more automation. Many areas are heading in that direction, but the industry remains labor intensive.

Data input, automated health care tests, lab work and food preparation are key places where automated equipment and artificial intelligence could deliver savings.

Expanding telemedicine

In an age when people store extremely sensitive personal data online, it’s remarkable that digital communication to help doctors and nurses diagnose and treat ailments remotely, known as telemedicine, remains uncommon.

Many people simply still want to see their doctors in person. Maybe that won’t change.

Then again, many people used to say they wouldn't bank online — and now they do.

Chase and other major banks have demonstrated that customers become more comfortable using the Internet for transactions once they realize they're safe, and perhaps even more efficient.

With expanded telemedicine, health care providers could share physicians and nurse practitioners, potentially lowering costs.

Roosevelt, the attorney, says the new coalition could offer telemedicine technology to providers.

Transforming drug pricing, distribution

The complex nature of pharmaceutical manufacturing and delivery is widely seen as a contributor to high costs.

One layer of the system that remains confounding is a category of companies called pharmacy benefit managers, or PBMs, such as Express Scripts and CVS Health’s Caremark. Those two firms alone control about 50% of the category, the University of Minnesota's Abraham says.

As middlemen, PBMs handle drug distribution. Some industry leaders blame PBMs for high drug costs, including Mylan CEO Heather Bresch, who did so after her company came under fire for hiking the price of the life-saving EpiPen.

But the Pharmaceutical Care Management Association says that its PBM members will save hundreds of billions in drug costs over the next decade.

Others have insisted that it’s drugmakers like Mylan that should be targeted because of their power over pricing.

Amazon has already signaled it may enter drug sales by launching an online pharmacy. Could it cut out the middleman again?

Promoting healthy living

Chronic diseases represent about 90% of U.S. health care spending, according to RAND Corp., but many of those conditions could be mitigated with healthier living.

Changing behavior sounds practically impossible — except Amazon has done it in retail.

Some 40% of Americans never get their prescriptions filled, and 40% of those who do never get them refilled, says Andrews of the Health Transformation Alliance.

Perhaps Amazon can find technological ways to nudge people to take their medicine, eat healthier and get care when needed.

“They are masterful at understanding consumer behavior,” Andrews says.

Abraham says there’s a huge incentive for companies to get employees to live healthier lives.

“We know that healthier workers not only cost less, but they are also more productive,” she says.

Reshaping payment to health care providers

The way health care is structured today, most providers get paid for the amount of services they provide, not necessarily the success of care.

Andrews says that it’s critical to rework that formula.

He anticipates that Amazon, Berkshire and JPMorgan will pursue a strategy similar to his organization's: tying payment to quality of care, which he calls fee-for-value

“Having three companies with their firepower and brainpower pulling on our side of the rope is a good thing.”

Skepticism warranted

Several health care experts remain skeptical.

For starters, some say that health care costs cannot be meaningfully lowered by three companies. Others say that the sector won’t change much without government action, such as price controls, increased competition or universal coverage.

But that doesn’t mean change is impossible.

“Should we pin our hopes for a complete transformation?" asks former Federal Trade Commission chief economist Martin Gaynor, now a professor of economics and health policy at Heinz College. "No, I think that would be a mistake.”

But, he says: “I think there’s some real potential here for upside. I don’t think we should let perfect be the enemy of the good, and if there are some things they come up with that make an impact, I am certainly all for it.”

Follow USA TODAY reporter Nathan Bomey on Twitter @NathanBomey.