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Why Amazon, Berkshire and JPMorgan will continue the push for value

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Some big names have jumped into the movement to reinvent healthcare and try to reduce the rising arc of medical costs.

Today, Amazon.com, Berkshire Hathaway and JPMorgan Chase & Co. announced plans to collaborate on a way to offer healthcare services to their employees. While the plan is initially targeted at their employees, executives say the plan could be expanded to offer services to other companies and organizations.

There’s significant shock value when an initiative includes the likes of Amazon, Warren Buffett (the chair of Berkshire Hathaway) and a huge banking conglomerate such as JPMorgan Chase. They say the new company will have an initial focus of using technology to provide simpler, cheaper and more transparent healthcare.

That said, it’s difficult to anticipate the specific direction for the new company, which is said to be in the early planning stages. It could veer in any number of directions that could especially take advantage of Amazon’s acumen in marketing and technology—for example, pharmacy benefits management, drug sales and analytics.

The new initiative’s eventual goal first needs to be viewed in the bigger picture of massive change that healthcare has been undergoing for years. The backdrop is value-based care, which seeks to increase the value of healthcare, rather than just the quantity of services delivered. That speaks to past statements by Buffett, who has bemoaned the large portion of the American economy dedicated to healthcare. A variety of factors, including reimbursement incentives, defensive medicine and the growth of medical capabilities, have led to burgeoning healthcare expenditures.

The shift to value-based care has already started nudging healthcare in a new direction, using reimbursement incentives to encourage new practices in medicine. Value-based care rewards providing the right services at the right time, not wasting time and money on services that needlessly drive up costs and provide no benefit to patients.

Value-based care also dovetails with the continued shift to patient-centered care. Much undergirds this ongoing effort to engage patients in their care; consumers are much more involved in preserving their health, and also want to weigh in on the decisions that affect the ways in which they are treated. That includes the fact that consumers are covering a higher percentage of their care.

Purchasers of care—primarily companies who cover employees with healthcare insurance—continue to look for ways to reduce what they spend for healthcare coverage. The newly announced initiative plays directly into this trend.

The challenge for Amazon, Berkshire Hathaway and JPMorgan Chase is to find a strategy that will effectively reduce healthcare expenses. The challenge for past such efforts has been that there are so many components to healthcare delivery—different types of providers, specialists, care venues and segments—that it is difficult to extract savings from all the components to achieve measureable savings.

Technologically, achieving coordination of care on a grand scale is challenging. Different providers have different kinds of information systems, and data does not easily flow from one system to another. Nor is there certainty that providers are willing to share information with competitors, or that competing information systems are willing to employ mechanisms to enable easy data sharing. This movement is growing, and is an emphasis of federal agencies, but interoperability and data exchange are still the exception, not the norm.

Change is definitely underway within healthcare. Insurers are combining and beginning to test new incentives to those they cover, such as providing wearable devices that measure their physical activity or reward the achievement of exercise goals. Population health initiatives are becoming more nuanced and targeted, looking to use technology to segment groups of people into those that need specific types of interventions. Providers are getting smarter, beginning to look at aspects of care such as social determinants of health, which play into how patients recover from illnesses or identify those who are likely to relapse.

However, progress has been slow. With an industry as massive as healthcare, it’s difficult to make radical change. The three companies in the current initiative employ an estimated 1.2 million people, so that might offer some scale that will cause innovation and savings at a faster rate.

One last caveat—the healthcare industry has always had an allure for companies that see the billions of dollars flowing through it and believe they can easily enter it and quickly achieve systemic change. The industry has proven to be challenging for new entrants, for the reasons mentioned earlier and many more.

Still, amassing technological and business acumen in a new entity, with an outside-the-box approach, will help prod the industry to respond to new pressures that will continue the trend toward value and downward pressure on prices.

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