Dr. Kevin Most: The business of healthcare

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Dr. Kevin Most

There is not a lot of positive things said about the business of healthcare these days, sure we are all proud of the clinical advancements that are being made, but what about the business side of it?

Warren Buffet quotes about healthcare include, “the ballooning cost healthcare” and “a hungry tapeworm on the American economy”

Politicians are not shy to say “the healthcare system is broken”

Couple these statements with an annual $3.2 trillion dollar cost for healthcare and it should not surprise any of us that some companies outside of the delivery of healthcare are now jumping into the business side of healthcare.

Like Willie Sutton answered when asked “Why do you rob banks?” “That is where they keep the money”

Companies are starting to look at one of the biggest expenses they have, healthcare
for their employees and families.

We all heard the news a few weeks ago about Amazon, Chase and Berkshire Hathaway partnering up to form a health care company, and just last week Apple announced it is hiring doctors and opening clinics for its employees. These 4 highly respected companies collectively have over 1 million employees, if you don’t know who Berkshire Hathaway is think Warren Buffett, still not sure, well one share of their company currently goes for over $300,000. They own large shares in Coca Cola and American Express. The other companies we are all very aware of.

So why are they jumping into healthcare? I think they have a few reasons, one is they are in service industries and production and have shown that they can lower the cost of their product while still delivering a great product or service. They are looking at the fragmented world of healthcare with increasing costs and often disgruntled patients, who also happen to be their employees. I am sure they are all looking at this industry and saying to themselves we can do this better or at least manage our portion better. If we prove we can we want to extend this concept beyond our 4 companies.

First they will probably look at the financial impact to their companies, as it was probably the reason it rose to the concern it is.

Now let’s take the conservative estimate for the annual individual cost for insurance coverage that each company has as a direct cost, this currently sits at around $7,000 per employee. That would show collectively they spend close to 7 billion dollars on health care a year, now get 3 smart CEO’s together and they start thinking together we should be able to cut some of these costs and deliver a better system to their employees. We have done it in the businesses we currently manage. They may be looking at a modest savings of 10%, that is $700 million, get it to a 15% savings and you are talking a billion dollars.

Take a different view, can they make an impact on something as simple as sick days which has a triple impact to companies. Not only do they pay the employee, they pay the healthcare cost and they lose out on the productivity of that individual. Estimates are that the impact of sick employees is more than one half a trillion dollars to companies. This fact may have them focus on wellness and access. Will they look to improve the experience, making sure the patient has access to care when they need it so it does not impact their productivity, that they demand health care at times and locations that do not impact the ability of an employee to work. I can’t tell you how many people have complained, why do I need to use 8 hours of vacation to see a doctor for 15 minutes. Patients who are able to access care at convenient times with a great experience may be shown to have less sick time off and thus make a big impact on their health as well as the health of the company’s bottom line. When you have 1 million lives to cover you may be able to demand that

Are they able to disrupt other healthcare processes? Some healthcare folks say “they are not in healthcare, they don’t know the business, they don’t know……. “. Remember, Amazon used to sell books, period. Now look what they are doing and how disruptive they have been to multiple industries, in many cases delivering a better product at a lower and more convenient manner. Apple has revolutionized the way we track our health on a watch or a phone. This group will have a fresh set of eyes and they could easily disrupt the current way we view healthcare. Many feel this is brilliant as they have enough mass to run a pilot, show that it works and then roll it out as a business.

I think many in healthcare are holding their breath, asking what might Amazon, Berkshire and Chase will do. The general consensus is that they will build a new delivery system with the 3 companies, prove it works and then roll it out to the general market. Amazon has some parts in place already with distribution system in place, they have proven they can deliver products very quickly and with high satisfaction.

They are currently jumping into the $374 billion dollar prescription business, that has double digit growth each year. Medication costs are making up more of the healthcare costs as patients are living longer and being medicated for more chronic medical conditions. Currently before a medication reaches a patient it goes thru the manufacturer, a pharmacy benefit manager (negotiate prices and set formulary for insurance companies), a distributor (delivery to pharmacy company) and ultimately the pharmacy. Each step taking a small cut, now as consumers, most with insurance don’t see the actual cost as all we are exposed to is the co-pay. However what we don’t understand is that it is built into the premium we pay for insurance. We do know that many without insurance are exposed to the full cost of the medication which can be 10x or more.

We know Amazon is a proven disruptor but will they essentially go straight from the manufacturer to the patient. This small step in the spectrum of healthcare could save 100’s of millions of dollars for just these 3 companies.

We know that healthcare right now is fragmented, doctors do their part but often in a silo, hospitals do their part, pharmacy does their part and often the communication between all of the parties is lacking. These 3 companies may look and see how technology can help provide high quality healthcare to their employees and eliminate the silos, use technology to communicate information and coordinate care much better. Each of these changes to lower cost and increase the quality of care delivered.

Remember this is the first modern day company to potentially put the patient in the center from a cost of care, delivery of care and quality of care view. This is a company that does not need to make money, all it needs to do is spend less than the 3 companies are currently spending, while delivering better care. They are very aware that this is a complex business but they already deal in very complex businesses and they know how to decrease costs while improving the experience of their customers. People were all upset as bank tellers were getting replaced by ATM’s, today people would be upset if we took the convenience of getting cash 24/7 and brought it back to bank tellers and 9-5 Monday thru Friday. Just think about that same example with medical care.

Amazon has shown us they we should expect that widget we need from Alaska being here tomorrow. I would expect that they will set new service expectations and work on a way to deliver them in a high quality and efficient way. This company will find a lot of opportunities to cut costs from their billion dollar spend each year.

Consider also the amount of data these companies already have on their 1 million employees, along with the data they have regarding how people make choices. Identifying an issue early, changing a process at work based on health outcomes be it physical or psychological. Couple that with the desire to make healthcare affordable, easy and transparent for their employees while delivering a great experience and things may get very interesting. Now it is not the first time a company has taken a look at healthcare costs and their specific companies, in fact over 100 years ago, Henry Ford saw such a need and built The Henry Ford Hospital in Detroit to care for his growing workforce.

So what can they do besides carry some large buying power? They could disrupt a lot, from the hassle of filling out of forms that we all love, to waiting in lines at pharmacies, to figuring out your recent bill from the doctor or hospital, to the being placed on hold as you look for an appointment for your sick child. These individuals are smart and all they need to do is look for pain points along the chain and work on them with a fresh set of eyes and use technology and their brute size to force change. It may be simple, look at inconveniences and make them more convenient and also look for high cost care and dig into what they can do to save some costs.

These companies may also look to partner with hospitals or other companies to be the preferred provider for not only their new health company but also for their financial or logistics. Holding inventory for a hospital is necessary but most want to limit how much they hold at any given time. Could Amazon do as good as job as some of the others? Could Chase offer financing for its partners who agree to a new process at preferred rates? The opportunity for partnerships may actually benefit both sides.

The power of these three could make a big impact on the cost of care as well as some innovation on the delivery of care. Time will tell as we see this company evolve.

What is Apple doing? Apple last week announced that they were launching medical clinics to “deliver the world’s best healthcare experience to its employees”. It may be subtle but they are not saying they will deliver the best healthcare, they are saying the experience will be the best. Although I would have to think that they have a financial aspect to their plan, it is interesting that they are focusing on the experience. We all know that experience drives compliance and loyalty in many industries and these are so important in the delivery of healthcare.

Apple is looking at taking a focus on promoting healthy behavior which should really not surprise anyone. The clinics will not only have physicians but they will also have health coaches, exercise coaches and navigators. These clinics will also allow them to trial any of their healthcare innovations they are developing for the iPhone, watch or new ideas. Giving their employees access to the newest thinking on wellness should be well received. Getting well documented results will give Apple great data as well as a platform to roll out innovation to all of the rest of us.

Now many companies feel they have a wellness program, some offer discounts off your premiums if you complete a health risk assessment or visit a health club a few times a month. Apple appears to be taking this to a much higher level. If successful, one could see companies asking Apple to open a clinic for their employees.

Will they prove that healthy employees actually are more productive and use less healthcare? Many are betting they are and that they will prove that their technology as well as personal touch will make a dent and bend the cost curve while also making their employees more productive thru health and wellness. Again one may look and think that this model may be reproducible based on the outcome they can show. One would think that they will focus on wellness driven by innovation and data, something no other clinic is focused on at this point

Also owning the clinic and having the staff as their employees allows for a sense of ownership as well as lower costs as they will eliminate the middle man for much of this. It will allow them to test new wellness ideas on a controlled set of patients with easily accessible data.

Apple will open multiple “state of the art clinics” in Santa Clara county close to their headquarters. They also say that they will treat only Apple employees initially, again leaving the door open to expand to a different business model. If they can prove to have a better clinic model you may see wellness focused patients seek them out as a place to receive their care. Employers may look to partner with Apple for clinics in areas they have high population of employees with the focus on wellness as well as eliminating some cost. Clinics with a large enough volume may also be able to have expensive imaging modalities on site and provide that service for a much lower cost. Remember their focus will not be on making money, they will be looking at cutting costs. The math is totally different. For example, Apple may be tired of paying $6,000 for a CT scan at a hospital. They may buy one for the use of their employees and then sell the open time slots to the public at a deeply discounted price.

Apple as you all know have had great success with health related apps for the iPhone and watch, so you can see that they are interested in wellness, education, health related goal settings, compliance and innovation. Chase, Berkshire Hathaway and Amazon have great experience in service, production and delivery companies that have embraced technology and innovation. Do we have a major disruption coming in healthcare ? Time will tell, but many are betting Yes.

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