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Taming the Tapeworm: Even Amazon Needs a Little Help

02/01/2018 By

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As reported earlier this week, Amazon, Berkshire Hathaway and JPMorgan have announced a partnership to cut health costs. Apparently, the partnership won’t be Amazon-led but rather an independent company that will operate “free from profit-making incentives.”

What does that mean? My best guess is that the new entity will deliberately bear no resemblance to the current group purchasing organization (GPO) supplier-paid fee model. Regardless, the statement served as perfect juxtaposition to the highly quotable Warren Buffett, who answered the bell with a sentence that has already gone viral: “The ballooning costs of healthcare act as a hungry tapeworm on the American economy.”

While there were no answers describing what the new entity will actually do, its stated mission is to provide “simplified, high quality and transparent healthcare at a reasonable cost.” If you see the irony here, feel free to jump to the head of the class.

What was indicated was that the entity’s initial focus will be angled toward purchasing technologies, so I smell a roll-up of good companies with great tech that have never achieved scale individually. Based on the chatter, it would appear that the company’s focus on supply cost reduction will be integrated with some combination of a revamped payer/revenue cycle system.

When Amazon’s Jeff Bezos admitted that the effort to enter the healthcare market will be challenging, I found it refreshing, because he’s candidly speaking from experience.

“The healthcare system is complex, and we enter into this challenge open-eyed about the degree of difficulty,” Bezos said in a statement. “Hard as it might be, reducing healthcare’s burden on the economy while improving outcomes for employees and their families would be worth the effort. Success is going to require talented experts, a beginner’s mind, and a long-term orientation.”

Boy do I like that part about “a beginner’s mind.”

I’ve written about where and how Amazon might enter the industry, speculating that the e-commerce giant would establish its beachhead in retail pharmacy, reinventing pharmacy benefits Management (PBMs) along the way. And while I still believe that to be true, I cannot help but emphasize that a big part of what’s driving this new venture is Amazon’s discovery that care market supply chains are an extraordinarily tough nut to crack — perhaps harder than, for example, revamping the entire pharmaceutical distribution industry.

Despite all of its scale and economic advantage, what Amazon now knows is that you cannot walk in the front door of a major hospital system and expect to get it done. You’ve pretty much got to circle the campus and force an unconditional surrender.

When you consider what Amazon, Berkshire Hathaway and JPMorgan Chase each brings to the table, you’re forced to acknowledge how well the group covers purchasing, logistics, technology acquisition/integration and just about everything imaginable touching healthcare’s financial ecosystem. And because they all understand that the road to redemption starts and stays in the health system’s CFO office, the significance of JPMorgan’s involvement in the new entity cannot be overstated.

“Our group does not come to this problem with answers,” Buffet said. “Rather, we share the belief that putting our collective resources behind the country’s best talent can, in time, check the rise in health costs while concurrently enhancing patient satisfaction and outcomes.”

I could go on — and I will in future posts — but if the group’s goal here is anywhere near as altruistic as advertised, it does, in fact, have the ability to change the non-patient facing side of the business. If the package could turnkey the rationalization of supply costs, simplify billing and accelerate revenue cycles (regardless of who’s paying), it could have a chance.

But no one should hold their breath. This week’s announcement is tantamount to a fact-finding mission that will take years to tangibly manifest. It’s a high-profile acknowledgment of something that everyone should know: from a business efficiency perspective, U.S. healthcare cannot seem to get out of its own way.