Column | Innovation and Disruption

Amazon in Health Care? Yawn . . .

Column | Innovation and Disruption

Amazon in Health Care? Yawn . . .

The recently announced Amazon-Berkshire Hathaway-JPMorgan Chase affiliation has been widely discussed an important development in health care, but it would not likely have enough control and leverage to bring about meaningful change.

Many healthcare industry executives have been pondering in the past month the potential impact of the announced affiliation involving Amazon, Berkshire Hathaway, and JPMorgan Chase on the healthcare system.

 

 

There is certainly a lot to get healthcare executives thinking about this novel collaboration among three large organizations capable of streamlining business processes and extracting lower costs from suppliers, including those that supply employee-benefit types of services. Any one of the three, through its sheer size, would represent a formidable bargaining unit in the healthcare industry. The three together, with a coast-to-coast presence, certainly could have an impact on the nation’s healthcare marketplace. But to me, the prospects don’t seem to be that earth-shaking. 

 

The Whole Foods Precedent

 

If one considers the impact that Amazon had in its acquisition of Whole Foods markets, there could be something for our profession to be concerned about. After all, Whole Foods market was commonly referred to as “whole paycheck market” predominantly because of its high prices for commodity food items. 

Many would say that there is an analogy in healthcare services. Whole Foods charged higher prices because it was aiming at a clientele that was not price-sensitive prior to the Amazon acquisition. That clientele had the resources to pay higher prices and generally did not consider price in buying decisions. Whole Foods profited for many years on that pricing model. If any consideration were given to price, it was in the context of “higher price equals higher quality.” Sound familiar?

I would argue that health care in many ways represents a parallel to Whole Foods prior to the Amazon acquisition. After all, many people in the United States have resources to pay higher prices—because they have health insurance. Just like the shopper who was unconcerned about paying $2.99 for an avocado, U.S. consumers tend not to be concerned about the actual cost of their care. They don’t ask the price because they assume the insurers will handle it, so they rarely confront in their own lives cost issues such as a $50 aspirin or a $480 bag of IV saline.  And anyway, the insurer usually pays a lower price than the “retail” price. 

As a society, we also seem comfortable with the idea that a higher price equates to higher quality ($50 aspirins aside). Hmmm . . . Did Whole Foods learn pricing from health care? 

After acquiring Whole Foods, Amazon immediately intervened with management to lower the prices of things like avocados. It would be reasonable to assume, through its affiliation with Berkshire Hathaway and JPMorgan Chase, Amazon might seek a similar approach in its dealings with the healthcare industry. However, I am not persuaded that will happen. After all, Amazon/Whole Foods was the seller in my example. In health care, Amazon is the buyer, and it does not own the delivery channels in health care as it does with Whole Foods. 

If the Amazon-Berkshire-Chase affiliation were to cover a majority of persons—say to the magnitude that the Centers for Medicare & Medicaid Services (CMS) has with Medicare—the headlines might be more chilling for healthcare providers. But we still control our business. This new triumvirate may complain and may try to trade volume for discounts, but we see how that has worked before, right?  Perhaps my next column should talk about the fallacy of patient steerage. I just do not see a material impact to our way of doing business.

Impact on Price Transparency

 

That said, in a recent column, HFMA’s Rich Daly referenced a push toward price transparency. I could easily see that happening in an Amazon-led affiliation working with healthcare providers. Because they do not control the distribution of healthcare services (we will see about their forays with acquiring state pharmacy licenses), I cannot see how they could change our operating paradigm—other than perhaps by being the first entity to openly price shop and share results. 

This does harken back to some of the comments I've made in earlier columns regarding price transparency. Even then, I would take pause. As the report of HFMA’s Price Transparency Task Force notes, “price” depends on perspective. The task force also makes an astute point about “relevance”: Price is important for elective services that can be scheduled. Emergency department visits, which constitute a large proportion of today’s hospital business, are certainly the “Pre-Amazon avocado” I mentioned before—we just don’t consider price. I also think price transparency faces many practical hurdles in overcoming peoples’ fears about listing actual insurer rates. The biggest impact from the Amazon deal I see is greater transparency into the patient price—out-of-pocket cost sharing amounts. Ho hum . . . we already have that. 

If anything, one could surmise that the affiliation might be sufficiently disruptive to bring price transparency to the forefront in our industry. But that would be only for the patients they insure. I cannot fathom a situation where this conglomerate would have the leverage or ability to drive price transparency for others who are not in its network

No Real Force for Change

 

For me, the trump card on the likely impact the Amazon-Berkshire-Chase affiliation is that there is no incentive for the industry to change. Yes, the conglomerate has many covered lives, but it has no legal standing to dictate rates as does CMS. What can these companies really do? After all, we still have our governing boards to serve, communities to serve, employees and vendors to pay, and unfunded compliance mandates that will not change. I can’t see a way that this gang of three can transform the industry—especially if we have no incentive to go along with them. I foresee nothing more than a lot of bluster. The control and leverage for change just aren’t there. 

So how should healthcare organizations respond to what this affiliation represents? Certainly, the industry should continue to develop price transparency. However, in the unlikely event that the Amazon-Berkshire-Chase triumvirate can somehow put prices out in the market and allow insurers as consumers to start bidding for services, healthcare providers again will face the challenge of defending the reasonableness of their pricing, even at a net revenue level after discounts. This may be a vexing question for some of my colleagues in the field. Especially those who have investors and earnings growth requirements to meet. 

To the limited extent that this new affiliation can push greater public disclosure of provider prices, this might be a good time to start scripting our responses to questions on the adequacy of pricing. But that’s as far as it goes—it’s unlikely that it will bring wholesale change to health care. One need only look at all the previous failed attempts to reform our current healthcare system. Our current model of high volume equals high revenue is a paradigm that will not be easily broken. Investors in our organizations as well as communities will fight hard against potential retrenchments on revenues. Given today’s constant attention to the quality of outcomes, we will have a strong case in support of maintaining revenues near current levels to sustain the resources needed for high-quality care. But talking about change beyond pricing? Yawn . . . been there, done that—and still doing it, after all these years.

 


Jeff Helton, PhD, FHFMA, CMA, CFE, is associate professor, health care management, College of Professional Studies, Metropolitan State University of Denver. 

 

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Jeff Helton

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