In January 2018, the CEOs of Amazon, Berkshire Hathaway and JPMorgan Chase shook the healthcare world with the announcement they were combining forces to show that, with a better use of technology, healthcare could be produced with greater transparency and at a reasonable cost.
The CEOs’ action was borne out of frustration with the healthcare their employees and employee families were receiving. They believed that by tapping into the combined force of three companies, they could “do it better.” The mere announcement of this effort by these three behemoths of business caused a significant drop in the share prices of large health insurers and drug companies. One can only wonder, after all the fanfare, why there has been such scarce news about this ambitious undertaking.
The collaboration’s objectives
The effort focused on access to primary care, simpler insurance benefits and lower-cost prescription drugs. Their guiding principle was that Haven, the name that was ultimately given to the company, would be an advocate for the patient and serve as an ally to any others who work to improve patient care and reduce its costs. Although their initial focus was to be their companies’ own employees and employee families, which collectively amounted to 1.2 million covered lives, their ultimate intent was to sell the products and services of Haven to other companies. The company would have to demonstrate success with its own employees before making its strategies more widely available.
The founders believed that making Haven not-for-profit, using first-dollar coverage and providing better primary care access and incentives for wellness would enable the company to successfully sustain lower healthcare costs. These efforts would be supported by direct negotiation with expensive specialists and would use new distribution models to lower their costs.
Although the three CEOs have been very successful in their own business areas, none of them came to the new venture with experience in being responsible for the healthcare of more than a million individuals, nor had their businesses been involved in the distribution of healthcare services. Amazon provides access to non-prescription health products, had acquired some prescription distribution businesses such as PillPack and had also started telehealth services for its employees. But it had no direct experience in delivering hospital and physician services to seriously ill patients.
How earlier efforts fared
Despite the strong response from the stock market, doubts were raised early on. An article published by The New York Times in January, in “The Upshot,” noted the Amazon-Berkshire-JPMorgan effort is not the first employer-led effort aimed at tackling healthcare’s cost and complexity. Employers have banded together in the past to form purchasing alliances and have contracted directly with providers and health systems to avoid third-party payers. And while such efforts can produce small wins, they tended to get swamped by the larger trends associated with employee healthcare costs.
In my March 2018 “Eye on Washington” column, written shortly after the announcement of the Amazon-Berkshire-JPMorgan collaboration, I noted earlier efforts by IBM to offer its employees healthcare apps that would provide information about treatments associated with various illnesses, the care options available to the employees and assessments about providers they could access. Unfortunately, none of these apps were used — an experience that was echoed by Castlight Health. It was hard not to be skeptical then, just as it is hard not to be surprised now at the failure of Haven to deliver on its promises.
Healthcare’s unique challenges
Healthcare has characteristics that make it particularly hard to tame in a sustained way. Most of the spending occurs for hospital and physician services, particularly those involving complex procedures that often require extended or repeated stays and that sometimes are reliant on expensive biologics or treatments that have few comparable alternatives.
Healthcare spending also is very concentrated, with 5% of the population accounting for 50% of all spending, and with the 50% of the population having the lowest spending, accounting for only 3% of total spending. This reality means that much of Haven’s focus on better primary care access and incentives for wellness might produce healthier, and perhaps, even more productive workers. But it is not likely to have much impact on the primary drivers of healthcare spending: the catastrophically sick.
In some cases, it is possible to predict which individuals will require high-cost treatments, thereby contributing to high spending. And this foresight could allow for those individuals to receive more coordinated treatment, resulting in reduced costs over the long term. But for some individuals, it is difficult to anticipate their future need for high-cost treatment, because they either do not respond in predicted ways to medical treatment or they end up with unpredicted complications during their treatment. There was nothing in the plans of the Amazon-Berkshire-JPMorgan venture that was designed to change the trajectory of high spending for these types of catastrophically ill patients.
After two and a half years, Haven has experienced a variety of challenges. There was too much turnover in several key positions. Its initial CEO, the nationally known surgeon Atul Gawande, stepped down in May to become chairman, at least in part because his leave of absence from Harvard had reached its time limit. Gawande has been open about his lack of business experience, which led to concerns about his ability to execute routine operational responsibilities. In a company that can afford an operationally strong COO, a CEO who is mostly strategic and visionary can complement the strong COO. But such a scenario tends to be financially challenging for start-up ventures, and that appears to be the case, here.
Haven’s biggest challenge may have been that it began to overlap with some of Amazon’s other business efforts while it found itself being pressed by competitors like Walmart. In September 2019, Amazon launched Amazon Care, a primary care program for its employees, which uses telemedicine checkups, prescription drug deliveries and at-home and in-office visits with physicians. In what should have been no surprise, Amazon found it was unable to get lower costs for its own employees in any place but Seattle, where it has a big enough presence to command lower prices from physicians, pharmacies and vendors who want to do business with the company.
The three companies haven’t necessarily written off Haven. But they have been forced to relearn a key lesson of the past two decades — that is, success depends on having a network of high-quality providers with financially aligned incentives, who are rewarded for spending less and improving health.