Chairman's Letter

June 2018

Three months ago, Amazon, J.P. Morgan, and Berkshire Hathaway announced that they were teaming up together to form an independent health care company for their employees. Today it almost seems like old news, but when it was announced at the end of January it had lots of industry observers and participants talking.

The CEO’s of the three companies know each other well, have some overlapping board members and share concern about the escalating costs of health care. In the case of Warren Buffet, he has additional concerns over access to the best care given specific health needs of some of his friends and colleagues. 

So, what is likely to come of this effort? Will this new independent company lead to new and innovative approaches to delivering health care services? Will the company lead, or will it follow existing trends in population health, transparency, increased patient deductibles, and co-pays? Hard to say at this juncture as they go through the traditional path of setting the company up and searching for a CEO.

We do know that there have been joint ventures like this in the past. For over 50 years companies have been coming together at the local and national level to “do something” to reduce the ever-increasing costs of health care. Yet with all of these initiatives dating back to the 1970’s and extending to today, health care costs continue to increase at rates far in excess of the growth in the GDP.  

What drives the costs of health care are two simple elements, demand and cost. Over the past 50 years for a whole host of reasons, demand has skyrocketed along with costs. 

In manufactured goods, as volume increases, costs usually decline due to economies of scale. In services, as demand goes up, supply usually increases to hold prices constant or lower.  Think of the costs of using a cell phone today versus 20 years ago, less expensive by a lot in both real and actual dollars. But not health care, the costs of a physician visit or hospital stay has gone up while the number of visits has increased substantially.

The new company has to address both the demand and the cost issue to have any meaningful impact.

So, what can it do? How can it make a difference? 

There is a secret weapon at its disposal. That weapon is Amazon. Amazon is the true innovator in today’s economy. The innovation mantle over the past 40 years has been passed from Boeing to IBM, to Microsoft, to Walmart to Google and now to Amazon.  It was said that Walmart reduced the growth in the US consumer price index (CPI) through its everyday low prices and its sourcing of consumer goods from China and other low-cost manufacturing sites. Google created value in the internet and brought information to our fingertips.  

Amazon has created a new dynamic around comparison shopping, keeping prices low like Walmart did and the ability to receive purchased goods fast. Amazon Prime two-day delivery or even within hours!

But what Amazon has really created is a new generation of technology that, if applied to healthcare, could have dramatic and I mean dramatic, impact.  That technology is Amazon Web Services (AWS). 

We are all familiar with the Cloud, moving our data centers into the cloud so that they are no longer on premises.  

We are also familiar with SaaS model companies, that run applications in the cloud for us, like Salesforce, Peoplesoft and Oracle. 

AWS is something quite different. It is new computing architecture built from the ground up to handle massive amounts of data, with its own language and set of applications with infinite scale-like abilities. For those less computer savvy, it is a new environment set up to handle “big data” and the Internet of Things “IoT”. AWS is designed to handle constant data flows, analyzing information in real time, saving what is relevant and passing over what is not needed.

Think for a minute of the sophistication of the Amazon business ecology, from running warehouses, to online comparison shopping, to streaming Netflix (they use AWS) to knowing everything about your shopping patterns. And now with Alexa talking to millions of people at the same time and processing their interactions and requests. 

The amount of data that is flowing constantly and being analyzed in real time is beyond imagination.  Real-time traffic information, Google Maps or Apple Maps, for instance, work in part by collecting data from cell phones traveling on those streets across the globe constantly. Massive amounts of data and all being analyzed by servers in the “cloud.” Think about how massive that amount of data is constantly being processed and returned to handheld devices.

How could this reduce the demand for health care services? Personalized medicine could become truly personalized, not the genetic profiling that we have focused on in the past, but behavior profiling. We have known for a long time that your disease propensity is a function of your parents and their parents. You have the genes that you have, and doctors have always asked about family medical history. Just take that information, couple it with behavior information ranging from diet to physical activity and interest in health behavior and you have a great start towards personalized medicine.  

Alexa can converse with you and remind you to perform sound health behaviors. Imagine Alexa at restaurants and people are asking Alexa if it is OK to eat that burger and still stay on the 2,500-calorie diet! Maybe not the best for restaurant food sales but powerful to help people manage their weight.

Move to the next step, diagnosis of illness. IBM is trying to use Watson to do this, and it will work in specific areas.  In the case of Amazon, we can track people constantly like that moving cell phone, monitor conditions constantly and know when someone is not feeling well. We have a “purchase history” of when the person was  not well and why. We will know whether the person is susceptible to viral infections or seasonal allergies. We can use that information to help guide a diagnosis. 

Further, think about machine learning across all of the diagnostic modalities, AWS has the tools to do this quickly. And more importantly, reduce the multiple diagnostic tests that are performed as physicians try and zero in on a diagnosis.  

Then of course, the part which would seem the easiest but would yield the least results is comparison shopping for care.  This has always been an economist’s nirvana to control costs, and one that I even supported in the development of a consumer directed health plan in the late 1990’s.

The reason comparison shopping does not yield great results is that choices are limited. Regulation, from licensing to certificate of need, to zoning etc., limit market participants.  When you are in the hospital, going from OR to ICU, you can’t stop, and comparison shop the cost of various ICU’s around. The ambulance goes to the closest trauma center. Yes, there are discretionary elements, imaging centers, outpatient laboratory, ambulatory surgery…truly elective care, that you can comparison shop, but these are of limited value in the grand scheme of things.

What the new company can do, is provide incentives for comparison shopping where it makes sense, provide incentives for healthy behavior within the context of individual goals, and more importantly, tie hospital payment to real incentive plans that reward conservative cost behavior. Marble lobbies are out and Amazon-like operating precision is in.

Health care has to operate on the Amazon schedule, not the “professionally designed” health care wait, test, wait, treat, wait, test, wait. Tools are available and using AWS and other services, we can track every element of the care process from patients to staff to equipment and remove the wait. We can take steps out which in turn reduces cost, reduces time of care and improves outcomes.  Information to reduce the time of care is available now, but we don’t use it because we don’t have to. We go back to the traditional “performance improvement” techniques of the past 30 years.

If Amazon were running a hospital, it would look very different. There would be pick lists or work plans for every element of care, and that plan would be communicated to the patient.  Information would be ubiquitous and available to all, patient, family, care giver and supplier. If there was a problem with a process, all affected would be notified. And Amazon would not rely on its own resources to deliver care but bring in those with the skills and resources to do it at the top of their capabilities.

It’s not clear what the new Health Care Company will do, if it resembles initiatives of the past, it will make news but not have real impact. If it looks to revolutionize care, move it into the 21st century, bring new data and information tools to bare, it could prod a slow-moving industry into a new reality. 

We will be participating in this new delivery world. Let us know if you want to be part of our journey and learn more.  It is time to make a change! Make a difference!

Michael A. Sachs