Amazon, JPMorgan Chase and Berkshire Hathaway’s announcement that they will join forces to create a new company that will take charge of healthcare delivery to more than 1 million combined employees was light on details, but heavy on possibilities for how the move could affect the larger healthcare system in the U.S.
EBA spoke with benefits consultant and columnist Jack Kwicien for his take on what impact the announcement from these influential companies could have on existing employer-based healthcare delivery. What follows is an edited version of the conversation.
EBA: Why would Amazon, Berkshire Hathaway and JPMorgan Chase form their own independent company to handle employee healthcare?
Jack Kwicien: This is an interesting combination of companies. They are industry leaders in three different sectors, and very large players. I think they each bring certain strategic capabilities to this initiative.
They're smart in terms of setting up an independent company [to run their healthcare system] because there needs to be a wall between them and the entity that's going to potentially deliver healthcare. Employees of those firms are going to be slightly skeptical about an employer being their healthcare provider on all levels.
Presumably, that means they're going to negotiate differentiated rates within physician networks, pharmaceutical fulfillment, laboratories, etc.
EBA: What are the problems in the healthcare/benefits industry that led them to do this?
Kwicien: One of the reasons they're doing this is to eliminate the profit margin from all of the various participants in the healthcare delivery food chain, which obviously adds significant cost to the bottom line.
Because it's [presumably going to be] a proprietary network, they are going to have significant clout. They should, in theory, because of their size and scale, be able to negotiate lower cost structures.
And if [they are] going to have control of the data flowing through to each of the entities in the food chain, that means they should, in theory, be able to have better outcomes in terms of the improvement of health of the employee population.
I think it's an exciting potential dynamic in the marketplace. I think it's going to take several years to pull it all together, but you can imagine, given the size of the entities, a national network of physician practices, laboratories, pharmaceutical entities.
EBA: Why did these companies feel the need to take the reins? Is it frustration over rising healthcare and prescription costs? Is it a frustration with employees who won't travel an extra 15 miles for a cheaper MRI or who use the emergency rooms as a primary care facility?
Kwicien: All of the above. Clearly, cost is the overriding driver. What they're trying to do is get their arms around the fact that if everyone else is controlling all the delivery mechanisms, they all have a profit motive.
Not to pick on pharma, but there have been a number of highly publicized instances in the last five years of price gouging. I think they're saying, “We want to be the one who's quarterbacking all the relationships and negotiating the fee structures so that we can actually budget for this instead of getting whipsawed by each of the providers dictating the terms of the price.”
The secondary driver would be, depending on where you are in the country, your healthcare provider network may not be as responsive to your employee population. The secondary reason is to assure more responsive healthcare delivery to their employees.
Finally, they're all looking for better outcomes. The old 80/20 rule applies: 20% of your employee population is creating 80% of your claims costs. If you can begin to impact those employees in a more favorable way so that they see the doctor on a regular basis, they have checkups, they take the appropriate medications and don’t skip their treatments — well, all those things contribute to better outcomes for the individual.
EBA: How will this change the benefits business and change how employees get their benefits? What does it mean for the industry and what comes next?
Kwicien: If they're successful in delivering that vision, then I think it changes the entire healthcare dynamic.
Nothing so far says that an insurance carrier would be a team participant [to this plan]. More than likely, they're probably already self-funded, given the size of the three employers.
I'm expecting they'll probably have some sort of self-funded mechanism that still leaves room for a stop-loss carrier, but not for a fully insured health insurance carrier.
The second thing is, I'm not sure that necessarily a benefits broker per se fits into the equation. They're undoubtedly going to have one or more consultants that are going to help to manage the plan design and negotiate the contracts with the various service providers and fee structures. I think that's a realistic possibility.
Finally, there's going be room for one or more third-party administrators because somebody is going to have to manage the day-to-day administration of the entire plan. Not only from the perspective of the employer, as is normally the case in a self-funded plan, but you're probably going to need somebody with an administrative capability to manage all the healthcare providers that you've negotiated your contracts with.
EBA: Will other industry giants form similar healthcare delivery systems?
Kwicien: There's a lot of work to be done, but on a strategic side, I think it makes all kinds of sense and I think a lot of other employers are going to take note of this. Some [competitors or similar sized firms] may try to do the same thing and replicate it and some may figure, “Well if they're successful with their own employee populations, perhaps they'll wind up making that available in the marketplace.”
That begs the question: If they make it available to the open market, will it have a profit motive to it?
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