Memo to: Warren Buffet, Jeff Bezos, Jami Diamond
Memo from: John Torinus, health care payer
Subject: New Business Model for Health Care
Fellow Victims of the Medical Industrial Complex (MIC): As three major payers for health care for your more than one million employees, you were so right last week when you warned about the danger of run-away health costs and vowed to do something about it.
Mr. Buffet put it well when he said, “The ballooning costs of healthcare act as a hungry tapeworm on the American economy.”
President Eisenhower warned on leaving office in 1961 that the power of the Military Industrial Complex was a danger to the country. The military was consuming about 9% of the nation’s Gross Domestic Product (GDP) then. Today it is about 3%. That compares to 18% of GDP for the Medical Industrial Complex, heading rapidly to 20%.
Because that ominous trend line, it is encouraging that you are bringing the market power and resources of Berkshire Hathaway, Amazon and JP Morgan Chase to the task of transforming the health care industry. It needs disruptive innovation.
Let’s stipulate that the medical side of the MIC gets pretty high marks. Most of the medical innovation in the world starts in the U.S. and its caregivers often deserve sainthood.
But the economic side of the MIC is a national disaster. It robs the average American home of its fair share of prosperity. Milliman Inc., an actuarial consulting company, puts the price of health care at $26,944 for a family of four, up 6.3% from the year before. It should be no more than half of that.
Fortunately, you three leaders enter the fray when a good number of payers in the private sector are already been fighting the good fight and have developed a new business model for the delivery of care.
Because of their leadership, the current unsustainable model is giving way to a value-based model that is more affordable, accessible, patient-centric and quality-driven. The per employee cost for a full health plan at the pioneer companies runs $14,000 to $15,000, and that is still way too high.
This major shift in the marketplace creates a map forward for disruptive innovators like you intend to be. Here are the platforms that are coming together to rectify the glaring weaknesses in the current Medical Industrial Complex (MIC):
Proactive Primary Care: On-site or near-site “medical homes” are popping up all over the country. They deliver holistic, convenient care at the primary care level in a proactive, cost-effective manner. They manage family health for employees with the aim of keeping people out of dangerous, expensive hospitals. They deal with physical and mental health. They are the gatekeepers the over-priced MIC.
Artificial Intelligence/TeleHealth: Firms like Intellivisit (disclosure: I am an investor) tap the power of super computers and search engines to assist primary care practitioners with more accurate diagnoses. When appropriate, TeleHealth is used for the cost effective treatment.
Self-Insurance: Four of five private sector employers now underwrite their own health care risks up to a certain reinsurance level. They seek deflation in health care costs, versus an MIC pattern of high inflation. Leading self-insured companies, the ultimate payers for the nation’s care, are open to disruptive innovation to achieve higher value care.
Smarter TPAs: A few large Third Party Administrators are moving beyond their untenable middleman role of bargaining for discounts and claims processing. They know full well that discounts have not worked to control soaring inflation, so they are experimenting with new tools to add value for employers and employees.
Bundled Prices, Value Networks: Self-insured employers, smart TPAs and some large health plans negotiate directly with providers for low, fixed prices. They want a single, bundled bill for an episode of care. Gone are incomprehensible bills with multiple, code-based line items. Disruptive companies like Access Health Net (AHN) in Milwaukee (disclosure: I am an investor) offer an array of bundled prices from high-quality providers. These prices are typically 40% to 60% below median prices in PPO or HMO networks. Savings to employers from bundled prices can be 10% to 20% of a company’s overall health care spend. Why pay $50,000 for a joint replacement when they can be sourced from the best bone shops for $26,000 or less?
Nimble PBMs: With drugs now running at more than 20% of a company’s health care spend, some pharmacy benefit managers are coming clean with customers. They are returning all rebates (aka kickbacks) from big pharma to PBMs and to employees (coupons to cover co-insurance). Further, medical homes clinics tap the data from such PBMs to help monitor chronic disease conditions. Smart PBMs also facilitate infusions at on-site clinics to save service charges. Still, drug prices, especially for specialty drugs, are still out of control. With your market muscle, you three musketeers can apply pressure on the drug makers to stop gouging. It may take an act of Congress.
Putting It Altogether: Aggressive employers and innovative middlemen are putting these platforms together into a seamless new delivery model. Call it “value-based health care.” They offer a package of platforms that includes proactive primary care, AI diagnosis, a PPO network with a bundled-price “wrap” network, and an integrated PBM.
That’s the new blueprint. Go for it, and thanks for your belated but welcome entry to the battle.