Three famous rich men announced a vague plan to disrupt the American health care system this week, and people went a little nuts. Why is difficult to discern.
Sure, a joint statement from Amazon CEO Jeff Bezos, Berkshire Hathaway CEO Warren Buffett and JPMorgan Chase CEO Jamie Dimon seems like a big deal, no matter what the reason. They’re well-known, extremely wealthy people who run companies of which other people have heard.
But their 400-word press release actually contributed to the Dow Jones Industrial Average falling by more than 300 points on Tuesday, with traditional health care companies like insurers and pharmacy benefit managers especially feeling the sting because lots of investors apparently believe Bezos, Buffett and Dimon are about to eat their lunch.
When the cult of the billionaire CEO meets the obsession of business media and Wall Street with Silicon Valley-esque buzzwords, all bets are off.
What was missing from the introduction of BezosBuffettDimonCare, however, was the slightest indication of what these three men really plan to do, or any hint as to how their three corporations might succeed at containing health care costs where everyone else has failed. They’re going to start some kind of new company? To do something? At some point?
The utter lack of information didn’t stop people from going a little loony. The stock market tumbled. Business news outlets went all-out, pushing the story to users’ phones so everyone would know right away. These responses signaled big news, but the substance of the companies’ announcement didn’t match the hype.
The American health care system is bad. It’s too expensive, it’s horribly inefficient, and too many people don’t have access to care. If BezosBuffettDimonCare can help, that would be a welcome miracle. The Wall Street Journal tellingly compares this initiative to Bezos’ funding private space flight and Elon Musk’s hyperloop project.
It’s often said that health care is ripe for disruption, which is true. If Bezos can transform retail, Buffett can transform rich people into richer people, and Dimon can transform hundreds of thousands of family homes into a multibillion-dollar federal fraud settlement, surely they can transform the health care system. That makes perfect sense?
Or, as Yale University economist Zack Cooper put it:
Outsiders trying to disrupt health care don’t have a great track record to date, unless you count Theranos’ novel strategy of selling blood tests that don’t work or Oscar Health’s stunningly creative model of having a smartphone app and losing tons of money.
Trouble is, if all it took to fix what ails the American health care system were a handful of tycoons sitting in a room, those problems would be fixed by now. During decades of rising costs, however, employers’ main innovations have been raising everyone’s deductibles and enrolling workers in wellness programs that don’t work.
OK, so what did Bezos, Buffett and Dimon actually announce? Let’s turn to the first paragraph of the press release their companies disseminated.
Amazon (NASDAQ: AMZN), Berkshire Hathaway (NYSE: BRK.A, BRK.B) and JPMorgan Chase & Co. (NYSE: JPM) announced today that they are partnering on ways to address healthcare for their U.S. employees, with the aim of improving employee satisfaction and reducing costs. The three companies, which bring their scale and complementary expertise to this long-term effort, will pursue this objective through an independent company that is free from profit-making incentives and constraints. The initial focus of the new company will be on technology solutions that will provide U.S. employees and their families with simplified, high-quality and transparent healthcare at a reasonable cost.
Ah, reducing costs and using technology. Why didn’t someone think of that before?
Selling health care is a good business. Pharmaceutical companies, health insurers, hospitals and doctors do quite well for themselves. Buying health care, as any human resources manager and any human American can tell you, sucks.
“The ballooning costs of health care act as a hungry tapeworm on the American economy,” Buffett said in the press release. That line has gotten a lot play. The Oracle of Omaha truly is wise.
While all three executives were quoted acknowledging the difficulty of the task before them, they also laid out a pretty ambitious mission. “The three of our companies have extraordinary resources, and our goal is to create solutions that benefit our U.S. employees, their families and, potentially, all Americans,” Dimon said.
That derring-do, plus the power of name recognition, is what investors and the business media keyed in on. Again, though, what exactly can these three companies do with their joint venture that big employers haven’t been trying for decades?
Much has been made of the potential for BezosBuffettDimonCare to move the needle on health care costs because the three companies employ about 1 million people. That seems like a lot unless you give it a moment’s thought.
Walmart employs twice as many people, and its efforts to contain company health care costs have succeeded only on the margins. More than 150 million Americans have health insurance from their employers, including many big companies, and those firms have been unable to get doctors, hospitals and drugmakers to budge much on price.
There are a slew of business groups ― some decades old ― founded with the sole mission of saving the health care system. The National Business Group on Health and its regional affiliates. The Leapfrog Group. Individual companies from Xerox to Whole Foods (now part of Amazon, as it happens) have tried, too. Success has been limited.
Just two years ago, dozens of major corporations (including Verizon, which owns HuffPost through its Oath subsidiary) banded together to form another one of those umbrella groups. Who can forget the tremendous victories won by the Healthcare Transformation Alliance?
The federal government provides health coverage to nearly as many people as all employers combined, through programs like Medicare and Medicaid, and Uncle Sam even lacks the clout to push health care providers to change the way they do things.
Why is this so hard, and why might the geniuses behind three brand-name companies fall short as everyone else has?
For a start, health care represents 18 percent of the U.S. economy. A lot of people think that’s too much. You know who doesn’t? The people who run and profit off the health care system.
Every penny of the more than $3 trillion spent on health care each year goes into people’s pockets, and none of those folks are going to let Bezos, Buffett and Dimon pick their purses without a fight. And these are people who don’t lose very often.
Is BezosBuffettDimonCare going to develop new drugs, medical devices and surgeries, and then charge $1 for them? Is it going to open new hospitals and clinics that don’t bill patients halfway to death? Is it going to somehow force doctors to accept lower rates than they do now? Is it going to make health insurance companies approve more claims and accept lower profit margins?
In their joint statement, Amazon, Berkshire Hathaway and JPMorgan Chase make a point of saying BezosBuffettDimonCare will be “free from profit-making incentives and constraints.” Indeed, the odds are in favor of profit not being an issue here, at least not for them. The health care sector, however, probably will do just fine.