Skip to main content
Subscribe
  • Sign Up Free
  • Login
  • Subscribe
  • News
    • Current News
    • Providers
    • Insurance
    • Government
    • Finance
    • Technology
    • Safety & Quality
    • Digital Health
    • Transformation
    • ESG
    • People
    • Regional News
    • Digital Edition (Web Version)
    • Patients
    • Operations
    • Care Delivery
    • Payment
    • Midwest
    • Northeast
    • South
    • West
  • Blogs
    • AI
    • Deals
    • Layoff Tracker
    • HIMSS 2023
  • Opinion
    • Breaking Bias
    • Commentaries
    • Letters
    • From the Editor
  • Events & Awards
    • Awards
    • Conferences
    • Galas
    • Virtual Briefings
    • Webinars
    • Nominate/Eligibility
    • 100 Most Influential People
    • 50 Most Influential Clinical Executives
    • Best Places to Work in Healthcare
    • Excellence in Governance
    • Health Care Hall of Fame
    • Healthcare Marketing Impact Awards
    • Top 25 Emerging Leaders
    • Top Innovators
    • Diversity in Healthcare
      • - Luminaries
      • - Top 25 Diversity Leaders
      • - Leaders to Watch
    • Women in Healthcare
      • - Luminaries
      • - Top 25 Women Leaders
      • - Women to Watch
    • Digital Health Transformation Summit
    • ESG: The Implementation Imperative Summit
    • Leadership Symposium
    • Social Determinants of Health Symposium
    • Women Leaders in Healthcare Conference
    • Best Places to Work Awards Gala
    • Health Care Hall of Fame Gala
    • Top 25 Diversity Leaders Gala
    • Top 25 Women Leaders Gala
    • - Hospital of the Future
    • - Value Based Care
    • - Hospital at Home
    • - Workplace of the Future
    • - AI and Digital Health
    • - Future of Staffing
    • - Hospital of the Future (Fall)
  • Multimedia
    • Podcast - Beyond the Byline
    • Sponsored Podcast - Healthcare Insider
    • Sponsored Video Series - One on One
    • Sponsored Video Series - Checking In with Dan Peres
  • Data & Insights
    • Data & Insights Home
    • Hospital Financials
    • Staffing & Compensation
    • Quality & Safety
    • Mergers & Acquisitions
    • Data Archive
    • Resource Guide: By the Numbers
    • Surveys
    • Data Points
  • Newsletters
  • MORE+
    • Contact Us
    • Advertise
    • Media Kit
    • Jobs
    • People on the Move
    • Reprints & Licensing
MENU
Breadcrumb
  1. Home
  2. Finance
February 02, 2018 11:00 PM

Disrupted: American healthcare has reached its tipping point

Alex Kacik
Shelby Livingston
  • Tweet
  • Share
  • Share
  • Email
  • More
    Reprints Print

    American healthcare has reached a tipping point. Look no further for proof than the insiders and outsiders who are linking up to disrupt the long-stagnant, cost-ridden industry that's eating up nearly a fifth of the nation's gross domestic product.

    THE TAKEAWAY

    Disruption is coming from inside and outside the industry. But past efforts have fallen flat when it comes to lowering costs.

    E-commerce giant Amazon is partnering with JPMorgan Chase and Warren Buffett's Berkshire Hathaway to take a bite out of employer healthcare spending. CVS Health and Aetna are combining to offer cheaper, more convenient access to care and services. Apple is working with hospitals and technology vendors to put medical records in the palms of patients' hands. And four major health systems last month stepped into pharma territory with plans to launch a not-for-profit generic-drug company.

    Each alliance is targeting healthcare costs, claiming that unsustainable growth is hobbling the economy and U.S. businesses. Large employers, providers and payers are fed up with healthcare's ever-growing price tag.

    Key players have started looking for nontraditional partners to help them crack the code. Nearly all healthcare experts agree that the time is ripe for disruption in an industry characterized by a pace of innovation that lags behind other sectors of the economy.

    "When you have mediocre access and a low level of convenience and high costs, then you have disruptors that are going to be all over you," said Kenneth Kaufman, chairman of management consulting firm Kaufman Hall.

    Healthcare now accounts for 18% of the U.S. GDP. Employees and their employers, who are the largest purchasers of healthcare, together spend nearly $19,000 on annual premiums per worker for job-based family health coverage, according to a 2017 survey by the Kaiser Family Foundation and Health Research & Educational Trust.

    Despite shifting costs to workers through high-deductible plans, and often limiting where they can get care via narrow networks, per-person employer-sponsored spending in 2016 grew 4.6% to $5,407 over 2015, according to the latest annual report by the Health Care Cost Institute, which did not account for inflation in its analysis.

    "Clearly the cost of care has produced a tipping point. It might be just becoming too much—costs are so onerous and unsustainable that they can't look the other way," Gartner analyst Barry Runyon said. "We can't afford healthcare. Normal middle-class people go into bankruptcy with one bad illness."

    Experts agree that the accelerated attempts to disrupt the industry by slashing costs are noble and innovative. But they disagree as to whether the companies—be it Amazon and friends or CVS and Aetna—can succeed in influencing healthcare pricing.

    While acknowledging that costs need to be reined in, healthcare leaders point to larger societal problems that often end up on their front doors and have a ripple effect across the system.

    Michael Dowling, CEO of Northwell Health

    Power trio

    • Amazon
    $177.9 billion in 2017 revenue541,900 employees(as of Sept. 30, 2017)
    • Berkshire Hathaway
    $223.6 billion in 2016 revenue367,000 employees(as of Dec. 31, 2016)
    • JPMorgan Chase & Co.
    $99.6 billion in 2017 revenue241,000 employees(as of Dec. 31, 2017)

    "It's important to keep in mind that the bulk of healthcare problems—and costs—stem from lifestyle behaviors and social circumstances," Michael Dowling, CEO of Northwell Health, said in an email responding to questions about the Amazon-JPMorgan-Berkshire venture. "I would like to see some of these companies go into poor neighborhoods and try to figure out how to address health issues stemming from poverty, lack of jobs and all the negative social circumstances that contribute to chronic illness, substance abuse and health disparities in this country. That's the biggest challenge. "

    Healthcare innovation has moved notoriously slowly over the past few decades. To wit, there are still providers that rely on paper medical records. Consumers still don't have ready access to their data and doctor's notes. And despite all the talk about the benefits of paying for value over volume of services, most of the healthcare system is mired in a fee-for-service mode.

    Part of this is explained by the heavy regulation surrounding the healthcare industry. It's also because the industry spends a significant amount of time assessing the risk to the patient with each change it makes, said Hal Wolf, CEO of the Healthcare Information and Management Systems Society.

    Because of HIPAA laws, there's little portability in healthcare and no continuity of data if a patient switches insurance plans. Hospitals, physician offices and clinics use different EHR systems that don't speak to each other, payers use different claims processing systems, and care is known to be fragmented, said Joshua Raskin, analyst with Nephron Research.

    "Banking is way ahead of healthcare and is one of the first industries to be so consumerized, bringing services into your phone," Wolf said.

    While there have been endless attempts to upend the healthcare business model and lower costs, the success stories are few and far between. The stumbles offer cautionary tales for the latest forays aiming to disrupt the system.

    In partnering with providers and EHR vendors to put patient records on the iPhone, Apple was channeling Microsoft HealthVault and Google Health, which were launched in 2007 and 2008, respectively. Those companies looked to give consumers control over their personal health records and make them the interoperability agent.

    Arming patients with their own data gives them the power to take control of their health and care experience, which is what Apple is hoping happens. But in the past, consumer appetite and functionality haven't been there, experts said. And neither Microsoft or Google could muster enough critical mass to drive change. Google Health was abandoned in 2011.

    Previously, AT&T, HP and IBM Corp. tried to drive efficiencies through health information systems dedicated to logistics, materials, billing and revenue cycle management, but couldn't pull it off. Walmart had also been rumored to be planning a venture that would leverage its vast distribution network to make a dent in the healthcare supply chain, but it never came to fruition.

    "My sense is that this can't just be done through technology. These companies have to use their influence and market power to change behavior of not just employees, but payers and providers," Runyon said.

    There have been several employer coalitions that combined to put pressure on providers. The Pacific Business Group on Health created a narrow network of high-quality providers that its member employers contract with directly for certain services, such as hip and knee replacements.

    Just two years ago, the Health Transformation Alliance, a coalition of now more than 40 employers, formed to leverage members' combined heft to secure better pharmacy contracts. Members include some of the largest U.S. companies, including American Express, Coca-Cola Co., hospital system HCA, and IBM. The alliance this year also began contracting with healthcare providers in three metropolitan areas—Phoenix, Chicago and Dallas-Fort Worth—to care for employees with diabetes, hip and knee replacements and lower back pain. The group is looking to expand the program to new states in 2019.

    In several high-profile cases, employers have leveraged scale to contract directly with a health provider for all of their employees' health needs, ultimately cutting out the insurance company.

    "Some of our best breakthrough solutions over the years have come from employers who are paying many of the bills for our current non-system of care," said Dr. Mark Keroack, CEO of Massachusetts-based Baystate Health. It's worth noting, he said, that Kaiser Permanente grew out of industrial healthcare models.

    With few details available, it's unclear just how Amazon and partners plan to tackle healthcare costs, but the companies said they would initially focus on technology solutions to provide employees and their families "simplified, high-quality and transparent healthcare at a reasonable cost."

    The companies seem to be focused on lowering the cost of care primarily for their own employees, but successful solutions could be rolled out to the entire population in the future. It's unknown if they will simply self-fund employee benefits together, or if they will build out their own insurance operation.

    Still, observers have reason to believe this latest coalition could be successful, if for no other reason than they have the financial resources and technical expertise to make something happen.

    Any high-cost, high-margin business has to be worried about the partnership, said John Driscoll, CEO of health benefit-management company CareCentrix. Health insurance brokerage companies and the supply chain stand out as targets.

    Brokerage firms make a better margin on services than the health plans they sell, which makes them vulnerable, Driscoll said. And in the supply chain, there are many layers of costs between manufacturing equipment and supplies and their delivery. Amazon could upend those by collapsing different distribution regimes.

    "The excess prices in the U.S. system are a function of a lack of transparency and people not getting the care they need in the lowest-cost setting," Driscoll said. "The dream team of Amazon, Berkshire and JPMorgan can immediately bring value in terms of transparency, not just with price but availability of services. Still, they have to partner with players in post-acute world to shift care out of hospitals and nursing homes and empower consumers with data to know what options there are."

    Others doubt that with just around 1 million employees scattered around the nation that the companies have enough heft in one place to negotiate better rates from providers.

    Raskin said it's all about employer benefit design. "The consortium will find that beating up on the health insurers is probably not the answer. Their margins are at the low end of the healthcare industry," he said.

    That means using incentives to prod employees toward high-quality, lower-cost care. Transparency in price and quality data, which has long been hard to come by, is finally starting to emerge.

    Amazon "can use its technology to steer patients to proper sites of care in real time," said Andreas Mang, chief operating and innovation officer at the Blackstone Group's Equity Healthcare, which has helped set up custom health benefits for 52 companies.

    As employers and consumers become armed with more data about how care quality, safety and prices vary, employers should use cost incentives to eliminate access to inappropriate and unnecessary care, and eliminate network healthcare providers that are outliers, said Suzanne Delbanco, executive director for the Catalyst for Payment Reform, a not-for-profit group that mainly represents employers.

    But there's resistance "in giving up provider choice involved in narrowing provider networks, which you'd do better with a low-wage workforce," said Paul Ginsburg, director of the Center for Health Policy at the Brookings Institution and director of public policy at the USC Schaeffer Center for Health Policy and Economics.

    While the new Amazon-JPMorgan-Berkshire Hathaway entity is unlikely to have enough of a concentration of employees in any one market to shift the cost paradigm, the consortium could follow the Pacific Business Group on Health's model and negotiate deals with certain high-quality providers to deliver specialty care to employees, Delbanco said.

    "I fantasize that we'll decide to build some provider systems that are not subject to the current market power imbalance and where there can be real accounting for the actual cost of care and the efficiency of which it is delivered," she said, adding that the group has 34 large employers working with health plans to tie half of their insurance benefit payments to performance metrics. And seven years ago, Catalyst for Payment Reform had two employers that wanted to implement reference pricing. Now, the practice is far more common and is further driving conversations around transparency.

    "You can't overestimate the difficulty of doing this," Kaufman said of the attempt by Amazon and partners to tackle growing healthcare costs. "But when you put three organizations together, (given) the quality of those organizations and, especially with Amazon in the mix, it would be a mistake to underestimate their abilities."

    Letter
    to the
    Editor

    Send us a letter

    Have an opinion about this story? Click here to submit a Letter to the Editor, and we may publish it in print.

    Recommended for You
    Copy of finance_arrows_down_WEB_i_i_i.jpg
    Dozens of hospitals, health systems see credit rating downgrades
    Copy of states hospital costs_WEB_i.jpg
    Mark Cuban-backed study finds price discrepancies in hospital services
    Most Popular
    1
    Centene to lay off 2,000 workers
    2
    How health systems are battling price-gouging allegations
    3
    Senate advances bill to temporarily aid hospitals, health centers
    4
    Elevance, Blue Cross Louisiana halt $2.5B proposed deal
    5
    Tower Health to sell urgent care centers, close others
    Sponsored Content
    Daily Finance Newsletter: Sign up to receive daily news and data that has a direct impact on the business and financing of healthcare.
    Get Newsletters

    Sign up for enewsletters and alerts to receive breaking news and in-depth coverage of healthcare events and trends, as they happen, right to your inbox.

    Subscribe Today
    MH Magazine Cover

    MH magazine offers content that sheds light on healthcare leaders’ complex choices and touch points—from strategy, governance, leadership development and finance to operations, clinical care, and marketing.

    Subscribe
    Connect with Us
    • LinkedIn
    • Twitter
    • Facebook
    • RSS

    Our Mission

    Modern Healthcare empowers industry leaders to succeed by providing unbiased reporting of the news, insights, analysis and data.

    Contact Us

    (877) 812-1581

    Email us

     

    Resources
    • Contact Us
    • Help Center
    • Advertise with Us
    • Ad Choices
    • Sitemap
    Editorial Dept
    • Submission Guidelines
    • Code of Ethics
    • Awards
    • About Us
    Legal
    • Terms and Conditions
    • Privacy Policy
    • Privacy Request
    Modern Healthcare
    Copyright © 1996-2023. Crain Communications, Inc. All Rights Reserved.
    • News
      • Current News
      • Providers
      • Insurance
      • Government
      • Finance
      • Technology
      • Safety & Quality
      • Digital Health
      • Transformation
        • Patients
        • Operations
        • Care Delivery
        • Payment
      • ESG
      • People
      • Regional News
        • Midwest
        • Northeast
        • South
        • West
      • Digital Edition (Web Version)
    • Blogs
      • AI
      • Deals
      • Layoff Tracker
      • HIMSS 2023
    • Opinion
      • Breaking Bias
      • Commentaries
      • Letters
      • From the Editor
    • Events & Awards
      • Awards
        • Nominate/Eligibility
        • 100 Most Influential People
        • 50 Most Influential Clinical Executives
        • Best Places to Work in Healthcare
        • Excellence in Governance
        • Health Care Hall of Fame
        • Healthcare Marketing Impact Awards
        • Top 25 Emerging Leaders
        • Top Innovators
        • Diversity in Healthcare
          • - Luminaries
          • - Top 25 Diversity Leaders
          • - Leaders to Watch
        • Women in Healthcare
          • - Luminaries
          • - Top 25 Women Leaders
          • - Women to Watch
      • Conferences
        • Digital Health Transformation Summit
        • ESG: The Implementation Imperative Summit
        • Leadership Symposium
        • Social Determinants of Health Symposium
        • Women Leaders in Healthcare Conference
      • Galas
        • Best Places to Work Awards Gala
        • Health Care Hall of Fame Gala
        • Top 25 Diversity Leaders Gala
        • Top 25 Women Leaders Gala
      • Virtual Briefings
        • - Hospital of the Future
        • - Value Based Care
        • - Hospital at Home
        • - Workplace of the Future
        • - AI and Digital Health
        • - Future of Staffing
        • - Hospital of the Future (Fall)
      • Webinars
    • Multimedia
      • Podcast - Beyond the Byline
      • Sponsored Podcast - Healthcare Insider
      • Sponsored Video Series - One on One
      • Sponsored Video Series - Checking In with Dan Peres
    • Data & Insights
      • Data & Insights Home
      • Hospital Financials
      • Staffing & Compensation
      • Quality & Safety
      • Mergers & Acquisitions
      • Data Archive
      • Resource Guide: By the Numbers
      • Surveys
      • Data Points
    • Newsletters
    • MORE+
      • Contact Us
      • Advertise
      • Media Kit
      • Jobs
      • People on the Move
      • Reprints & Licensing