Trying to uncover the true cost of medical services or procedures is often an exercise in futility.
That might change with the creation of a new company announced this week by Amazon CEO Jeff Bezos, Chase Bank President Jamie Dimon and business magnate Warren Buffett.
The three titans of American business say they want to create a health care company that offers more transparency on health care costs and to provide coverage for their employees that is “free from profit-making incentives and constraints.”
The news sent shares of insurance companies and large pharmacies tumbling, but what exactly the three billionaires have in mind remains murky.
Dr. Joel Shalowitz, a professor at Northwestern University’s Kellogg School of Management and the University’s Feinberg School of Medicine, says he was unimpressed by the initial announcement.
“There’s been a lot of interest in business to control their health care costs for a very long time,” he said. “The question is, what is special about this that hasn’t been done before?”
Shalowitz believes that while Amazon’s technological and logistical expertise could bring benefits to the health care market, he’s unsure what the involvement of Chase Bank and Buffett’s Berkshire Hathaway could add.
“Everybody’s really focusing on Amazon which I think is appropriate because Amazon has a lot of technology that could be used to improve the health care space,” he said. “Hugely important is their analytics potential … they have really strong, deep capabilities that could go over into the health care space.”
Amazon’s experience developing its digital personal assistant “Alexa” also presents interesting possibilities.
“There’s a lot of potential for voice interaction to help people manage their own health care,” Shalowitz said. “So Amazon has a lot of really interesting things that they could do in healthcare. I’m not sure that I understand what the benefit is of partnering with a bank and a large diversified company.”
David Smith, chief development officer at Leavitt Partners, which provides health care consulting services, believes the partnership’s potential to disrupt the industry is what spooked health care stocks.
“These are three really disruptive businesses. These are three really disruptive minds,” Smith said. “I think this is a signal to the market about the seriousness of employers and the role that they play. … Health care is ripe for disruption. It’s ripe for disruption by the consumer. It’s ripe for disruption by technology. And there are forces working every day to create a platform for that disruption.”
Initially, the planned venture would only provide health care to the roughly one million employees of the three companies and their dependents. But if the three are able to produce a new model for health care provision that gives employees high-quality care at a lower cost, it could have ramifications for the whole health care market.
Buffet reportedly called health care costs a “hungry tapeworm on the American economy.” The goal of the new venture is to bend the cost curve so that price increases no longer outstrip inflation.
“Every employer is thinking about this,” Smith said. “If you begin to produce an employer-led model and show the pathway to driving down the total cost of care and you really capitalize on the purchasing power of employers, you bet that will create a wave. It will create a lot of attention and a lot of energy.”
Shalowitz and Smith join Eddie Arruza in discussion.
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