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Corporate America’s healthcare gambit

Mar 06,2018 - Last updated at Mar 06,2018

LUND, SWEDEN — In late January, Amazon, Berkshire Hathaway, and JPMorgan Chase announced plans to create a company that would help their employees in the United States obtain heathcare “at a reasonable cost”. While details remain sparse, the potential impact is already known: With a combined global workforce of more than one million people, the partnership could overhaul how healthcare is organised and delivered in the US and beyond.

By creating a joint venture “free from profit-making incentives and constraints,” the initiative aims to do something remarkable: Put patients first. According to Berkshire Hathaway CEO Warren Buffett, the goal is to rein in ballooning healthcare costs –— a “hungry tapeworm on the American economy,” as he put it — while enhancing patient satisfaction and outcomes.

Today, most of the US health-care industry is profit-driven, and this is reflected in nearly every decision, from which drugs get developed to who gets insured. But in a country that spends roughly 18 per cent of its GDP on healthcare, yet lags far beyond other rich countries in health outcomes, something is clearly amiss. It is into this dysfunctional environment that the three corporate giants are intervening.

Europeans are particularly interested in how this new partnership evolves, if only because it represents a bold approach in the struggle to lower healthcare costs. European healthcare regulators are often hesitant to implement structural reforms. Although authorities in some countries have explored innovative management models, such as patient-centred care and value-based medicine, the basic structures have remained unchanged for decades. Shakeups like the one being discussed in the US get everyone thinking.

Still, despite the proposal’s promise, big questions remain. Most important, what does “reasonable cost” mean, and how might a system be organised to deliver it? In a statement announcing the partnership, Buffett was surprisingly candid in how undeveloped the idea is. “Our group does not come to this problem with answers,” he conceded, only with a shared ambition to find them.

Maybe I can help. Based on my research and experience, I would suggest that three key objectives must be assigned top priority if the initiative is to succeed.

The first is to hold down administrative costs. In 2015, OECD countries spent an average of 3.2 per cent of their total health-care expenditures on administration and bureaucracy; in the US, it was a staggering 8.3 per cent. Although healthcare requires managerial overhead, in many countries, outdated tools hurt efficiency. Any reform that promises better information management, like improved patient records systems, would be worth considering.

Moreover, if the new venture brings big-data analysis and artificial intelligence applications to the clerical side of healthcare, total spending will naturally decline, and lower prices can be passed on to patients and payers.

Second, a reasonably priced system is one that focuses only on essential care. Modern health-care systems deliver a range of services, but they also typically offer more than is necessary. For example, many systems in Europe are integrated into the welfare system, an approach that raises expectations about which services should be provided.

By using different models of strategic purchasing and cost sharing, and by being more transparent about which services are covered, users could more accurately align their expectations with reality. Any new system that eliminates unnecessary care and focuses on what is really needed for patient wellbeing would also be more reasonably priced.

Finally, those designing the Amazon-Berkshire Hathaway-JPMorgan healthcare company must emphasise preventive medicine. Today, some of the world’s most common killers — such as cardiovascular illnesses and certain cancers, are preventable; as technology advances, doctors will be able to diagnose and treat these diseases even faster.

To be sure, preventive medicine is not easily incorporated into healthcare strategies, which is why OECD countries typically don’t spend significantly on it. In fact, many countries allocate more to administration than disease prevention and wellness initiatives. But it is undeniable that early diagnosis reduces overall treatment costs, and if future health systems are to be priced fairly, they must integrate health promotion.

No matter what becomes of the proposed healthcare company, the very fact that corporate America is considering this type of intervention will resonate around the world. Even if the effort is only partly successful, the money saved is likely to encourage further innovation.


Björn Ekman is a professor of health economics at Lund University in Sweden


Copyright: Project Syndicate, 2018.

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