Amazon, JP Morgan, Berkshire Hathaway & healthcare reform

Great Debates
101

I think you are missing something important here. The EU lacks much of the administrative complexity that ratchets up costs for the US. And EU healthcare systems are compartmentalized. If you are in France, you deal with the French system. If you are in the UK you deal with the UK system. US states are nothing like that.

In the US, you have medical insurance. You have in-network and out-of-network hospitals. You have the hospital billing insurance, and sometimes other parts of the hospital. You have insurance negotiating the bill with the hospital. You have things that are covered, things that aren’t covered, and exclusions. You have credit-checking, liaising, payment chasing. And everyone has their own system to negotiate.
You have people trying to cover their medical expenses out of pocket. And you have people on Medicare. And Medicaid. And Children’s, and IHA, etc. All of which have their own procedures and records and coverages. Anecdotally, some hospitals in the US have more administrative staff than they have beds.

And you have all these things in every single state! If the US ran on a system like, everyone in Texas is on Medicare, everyone in Vermont is VHA, everyone in California has insurance through employer financed pools, then the US and the EU would be administratively comparable.

102

I don’t disagree that healthcare is unsuited for market delivery. However, if we get a patient in here, and the doctor figures he needs an MRI, or some blood tests, or an X-ray -then we write a note to the local hospital and send him off for it.

He does not get the bill. We do not get a bill. We do not send off any paperwork to an insurance company or anything like that. The paperwork is keeping his medical records up to date. There is even less (as in almost zero) information in our system about the costs. This is pretty much how it worked in the UK as well.

And yet, our costs are far lower than the US costs. The UK costs are near half of ours again.

If Nava holidays here and needs health care, Spanish citizens count as legal residents and are entitled to the same use of our system. When my partner and I were holidaying in France in 2016 and she got ill, we went to the hospital and she was treated under the French system.

Of course, the costs are not all that anyway. Doctors, technicians etc. works in a hospital on a salary, so its mostly just scheduling an appointment and a few chemicals.

(Caveat: Some co-pays may apply, capped at about 300 $ / year)

I don’t have good stats on utilization either. I do know that Americans have fewer GPs, fewer hospital beds and fewer doctors visits than peer nations. It is possible that there is a commensurately higher consumption of healthcare at the other end of the cost spectrum. That is not unreasonable, because if uninsured and underinsured skip or put off visits to the doctor, many may end up needing far more expensive treatment later.

However, I would still expect that uninsured and underinsured in the US consume significantly less actual healthcare than people in other developed nations. Pulling the US consumption average down. So the overconsumption among the fully insured would have to be very disproportionate to compensate for that and still overrun other nations.

It is quite possible that there are far more end of life treatment in the US. This would be a consequence of the zero price elasticity situation. In a life or death setting, you don’t compare prices much. But with average lifespan in the US being less, it is strange if this exceeds the cost of treating older people for years in other nations. Old people are by far the most expensive patient group, I’ve seen it costed at about 400 %.

103

I don’t see this as a meaningful factor, if one at all.

The reason you don’t know what your visit costs is because it doesn’t impact you. If you wanted to find out, you could. But you’re not price sensitive because the marginal cost of a visit is picked up all or almost all by another payer (doctor visits are commonly copays, in which case it’s all), so you don’t care. Which is the issue I’ve been pointing to.

The one who does pay - the insurer - has quite a lot of information about prices. But they’re very limited in their ability to make decisions on that basis.

This last part is a big deal. There’s something like an 80/20 rule which applies to medical costs, in that the people with conditions who use expensive treatments cost the vast majority of health care spending. People going to their GP more or less are not what’s moving the numbers here. It’s people getting expensive tests and procedures. So it’s misleading to focus on the former.

WRT drugs, it’s worth being aware that drug spending tends to be about 20% of all health care spending. Not nothing, but not a huge deal either. (Lately this number has been increasing due to “specialty drugs”, some of which are hugely expensive, e.g. Hepatitis C drugs. Again, it’s not kids getting a lot of amoxicillin prescriptions which is driving the numbers here.)

104

This is strongly disagree with. I have no idea if my experience typical, but I absolutely am price sensitive, because I have co-pays and co-insurance in a high-deductible health plan, and it’s not as though this insurance situation is uncommon. I’m in a fortunate financial situation such that I don’t have to care too much about the difference between a $20 and $100 GP out-of-pocket expense, but as you point out, it’s not the GP visits that are racheting up the aggregate costs to begin with. I certainly was price-sensitive when my wife and I were shopping hospitals in preparation for the birth of our child a few years back. But getting accurate pricing info out of the hospitals was like pulling teeth (maybe I just didn’t know who to ask?) It’s not like the hospitals publicly published price lists of services, I couldn’t go to the hospitals and request contractually binding price quote (as I do at, say, my car mechanic). For the longest time afterwards, we received a steady stream of request for payments, none of which, fortunately, broke the bank. But if you asked me the day before my wife went into labor how much it was all going to cost me out-of-pocket, I couldn’t have given you an estimate, and I did make the effort.

Certainly, if it’s a health emergency, I’m not going to be price sensitive in that situation. But that’s then just a argument that perhaps market-based health care delivery is a poor idea to begin with.

105

I believe your experience is atypical.

Most people choose a doctor first and are locked into the hospital as a result. Even after you got your bills, you don’t really know whether there was a substantial difference in cost - to you - between one hospital and another, and it’s very possible that there wouldn’t have been. I think most people make the assumption that there will not be enough of a difference in cost to outweigh the preference for a specific doctor, and I’m guessing they’re right. (The prices per service are basically driven by whatever your insurer has negotiated, and in addition, if you have a baby you’re probably just going to end up paying whatever your OOPM is anyway (or a copay, if that’s what the plan terms are). Unless your hospital was out of network, which is extremely unusual.)

[FWIW, I imagine one problem hospitals have in giving you prices upfront is that they don’t know what will go down, e.g. whether your wife will opt for an epidural, or require a C-section, or the baby NICU services, or some other complications.]

106

But other service industries have the exact same issue and deal with it successfully. As mentioned, my car mechanic has this same problem. My home handyman has the same problem. The solution in the face of these types of uncertainties is typically to quote a somewhat higher price that takes into account common complications (which means I am getting overcharged if things go very smoothly, in some vague theoretical sense). With the caveat that they will charge more than the quoted price for extraordinary circumstances. If I ask, my other providers will happily outline some of the more “common” extraordinary circumstances along with typical costs to deal with such situations.

Now sure, delivering is baby is vastly more complex than fixing my car. But by the same token, my mechanic doesn’t employ a small army of finance specialists either. So this price-estimation issue should be a tractable problem to solve. But I suppose if you are correct that my situation is atypical, then it may not worth the hospitals’ bother.

One of the things I do hope will come out of this Amazon/JP/Berkshire venture is a public publication of their negotiated pricing with providers. That would be a clear test of whether or not health care consumers are price conscious or not.

Fotheringay-Phipps, is there a reason current insurance companies don’t publish provider-negotiated pricing info on their member sites for the benefit of their members? They think members won’t care, so it’s not worth the effort? It would piss off the providers? Something else? (Thanks for your contributions to this thread, by the way, I’ve learned a lot.)

107

Back to how Amazon/BH/Chase could approach this, and just spitballing here, no real numbers, just pie-in-the-sky thinking from a guy whose only experience with American healthcare is on the consumer end (get the ideas out and let the bean counters figure out how to do it later seems to be the model these guys are going with right now anyway):

If you’re Amazon/Jeff Bezos, your goal is for Amazon to become the dominant marketplace for the world. You’ve already revolutionized the book market, now you’re well on your way to dominating retail in general-- but there’s still room for growth. If your target audience is the middle class, then what you need to do is:

  1. make sure they have as much disposable income as possible,
  2. that everyone in the middle class stays in the middle class,
  3. that those at the lower end of the middle class and below can get a little more disposable income,
  4. people in the middle class use you for their shopping more than anyplace else and
  5. those in the middle class stay alive for as long as possible.

What’s the biggest thing standing in the way of becoming the dominant marketplace for the world if you want to hit those five targets? America’s crappy healthcare system. So creating something that revolutionizes American healthcare isn’t just some left-wing feel-goodery, it could make good business sense.

If people, even people with decent employer healthcare, are paying more for their healthcare these days-- through premiums, deductibles, co-pays, co-insurance, etc., that’s money they’re not spending with Amazon. And those with average or below average insurance are really forking over some cash on a regular basis, or they’re worried they’ll lose whatever nestegg they have should someone get really sick; their disposable income is very limited as well.

So what if Amazon (with the help of Buffet and Chase) could offer an affordable healthcare option (let’s call it Amazon Health Services) whose primary focus is:

  1. Keeping their customer base alive as long as possible,
  2. Making sure the middle class on down has as much disposable income as possible, and
  3. Giving them a huge incentive to spend their money buying things on Amazon (or investing through B-H or utilizing the services of Chase Bank)?

Here’s what Amazon Health Services does: They own the means of care (pharma, doctors offices, hospitals, technology, etc), they develop a way to provide diagnosis and care as efficiently and cheaply as possible (video, AI, clinics, etc), have negotiating power, eliminate waste and middlemen and everything else that bloats costs, and they offer it to the public at a price where Amazon Health Services simply breaks even, no profits.

So now you remove the ordering of unnecessary tests and services that doctors sometimes do to make money, and you take out the denial of services that insurance companies do to save money, you remove the overhead costs and whatever else inflates healthcare costs, and, as a healthcare service provider, they just do what simply needs to be done to keep people (Amazon customers) alive, healthy, sufficiently funded and indebted to Amazon for their health and lives.

Scenario 1: The Loman family, two middle-aged parents pretty much living paycheck to paycheck with pretty crappy insurance (high deductibles, insane out-of-pocket maximum), two teenage kids, all varying degrees of being overweight. Mom is on the verge of a stroke or heart attack because her cholesterol is high, but she doesn’t know it because lab work costs money that they just don’t have. Dad is obese and diabetic and has trouble breathing at night. Kids are both pre-diabetic and are constantly getting sick, which eats into the family’s savings. Mom ends up dying of heart attack in a year, but not before racking up a shit-ton of medical bills from her heart attack, that now overwhelm a single dad. Absolutely no disposable income for things like Amazon.

Scenario 1, with Amazon Health Services: The Lomans pay into the service plan, and all get full physicals and necessary lab tests and medication to get and stay healthy. The wellness program rewards the family with their 150-pound collective weight loss in the first year and drop in cholesterol and triglycerides. Their wellness reward comes in the form of a free year of Amazon Prime PLUS a hundred or so dollars in Amazon Reward Dollars. Now suddenly, they have an incentive to actually shop on Amazon, some disposable income of their own, a mom who isn’t dead prematurely, and no crippling medical bills as a result of the mom’s heart attack. That new TV doesn’t seem so far-fetched, and with Amazon credits and free shipping, they sure as heck ain’t buying it at Best Buy. You can now expect them to spend somewhere between $100-$300/year on Amazon in the next five years.

Scenario 2: The Krenic family. Young couple with a baby. Relatively healthy, both in their late 20s. Very middle class, but their insurance plan has very high deductibles and out of pocket costs. They have a fair amount of disposable income. Right now they spend about $300/year on Amazon. However, the husband has been experiencing testicular pain for several months. He doesn’t go to the doctor because of the high co-pay/deductibles, not to mention the hassle of dealing with insurance in our current system. He has testicular cancer, but isn’t caught until late. Thousands are spent fighting it, but he ends up dying anyway. Now a single mom has to find a job, pay for childcare, and deal with the medical debt accrued by her husband’s disease. At this point it could be projected she’ll now spend about $30-$50/year on Amazon over the next five years-- a fraction of the previous $300/year.

Scenario 2, with Amazon Health Services: Same as above, but with consistent no- (or low-) cost doctor visits, the testicular cancer is caught in time, treated for no (or low) cost, and the husband doesn’t die. Without the loss of her husband’s income, the medical bills, not to mention the fact that Amazon essentially helped them beat her husband’s cancer for little to no cost to them, they have a great amount of gratitude and loyalty to this company and more disposable income. With less money being spent on healthcare costs, plus some Amazon Rewards to boot, they can now expect to spend $500-$600/year on Amazon purchases over the next five years.
So essentially, the Amazon Health Services business model of 1) Keeping people healthy and alive, 2) With as much disposable income as possible, and 3) Tying their healthcare services with their Amazon account, they have the potential of increasing spending on Amazon immensely. It could also be set up in a way to attract young, healthy Millenials. Now I have no idea if this is financially possible, or what the price tag would look like, or if it’s just all nonsense, but if I’m Jeff Bezos, I’d be hiring the best bean counters in the world to figure it out.

108

Most mechanics and handymen I deal with give you a fixed price upfront that does not include any extras and if (as is frequently the case :)) they find other issues they call you up to tell you that they really think you need such-and-such for an additional fee. It’s not really feasible for a hospital to tell you in middle of a delivery “uh-oh, you’re going to need a C-section, that’s going to be an extra $X”.

But I agree that there would be more pricing transparency if there was more demand for it. I don’t think there is, for the most part. (I don’t think I’ve ever heard someone say “I’m going to choose Facility X over Facility Y because their prices are cheaper”, in the same manner that people will say “I’m going to go with Facility/Provider X over Facility/Provider Y because they’re in network”.)

I believe it’s a combination of not wanting to tick off providers (whether about their own agreements, or by finding out that other providers have more generous deals) and not wanting to give competitive info to other insurance companies.

[My own firm gets a lot of this info from the major national carriers, that we use for pricing the relative costs of the various carriers for our clients. But they (the carriers) are very proprietary about it, and we have strict conditions, e.g. we can’t share the data with anyone, and can only use it for certain purposes and not for others.]

You’re most welcome. Your own posts have been substantive and reasoned.

109

All the things you describe in your post (incentivized wellness programs, low cost or free checkups etc.) are already being commonly done by insurance companies. I don’t think having an Amazon tie-in to everything really adds much if anything. The only thing different is the idea that Amazon has or can get the best people, but that means they will have to pay the highest salaries to lure them away from other carriers, which adds to their costs.

Bottom line is that the problems of the current system are not there because of things that can be easily resolved by some good old common sense and basic decency. You never know if perhaps these guys might come up with something useful, but until we find out more details about what they’re up to, predictions that they can fundamentally change the system are very very premature.

110

Speculation on this model is not really necessary; we already have it in the form of Kaiser Permanente. Kaiser’s 2016 numbers show that they covered approximately 10.7 million people on $64.6B in revenue, a mean cost of around $6,000 / member. That’s substantially lower than the national average, which is in the neighborhood of $10,000 / person depending on how you count. An old 2012 study from the NCBI (Sociodemographic Characteristics of Members of a Large, Integrated Health Care System: Comparison with US Census Bureau Data - PMC) concludes that, at least for the Southern California area, Kaiser’s membership demographics mirror that of the general population. Whether that result is generalisable to Kaiser’s whole membership population today… who knows. There have also been some accusations, none proven, that Kaiser engages in patient dumping to cull some expensive members from their system, and there have been complaints that some key service areas are chronically underfunded to save on costs. Kaiser’s quality of care is generally considered to be pretty decent overall.

Kaiser has been struggling with the same kinds of medical cost inflation that have plagued other insurers and providers. They are starting from a lower base cost, so that helps, but it’s not clear at this point whether such managed-care models are superior, long-term, to the other US healthcare models.

111

This is a crazy business model even if it were possible. No one in their right mind would sell something for significantly less than it is worth in the hope that they use some of the savings to buy things from a related business.

The best case scenario is that Amazon uses it IT knowledge to streamline medical paperwork and its ruthless focus on cost to cut deals with doctors to accept less money in exchange for easier paperwork and less overhead. This could allow them to spend 10% less on its employees health insurance. Once they get the IT right they could sell it to other insurers.

112

The first question you have to ask yourself is how it’s possible for a single other carrier to be in business.

If you were an employer looking for coverage for your employees, and one carrier was offering the same product as the others for 40% less, who would opt for the higher cost carrier? Even a 10% difference should be enough. And the same would also apply to individual coverage.

I’m not very familiar with what Kaiser is doing, but the notion that they’re offering as good coverage at substantially lower cost than the other carriers is hard to accept at face value.

113

Where do you get the idea I suggested selling anything for significantly less than it is worth? I suggested they figure what it would cost to do this, and set service prices accordingly to break even.

114

Interesting, good to know.

115

Based on the Kaiser’s failed expansion attempts, there seem to be a couple of themes among the failures:

  • The model seems to work better in densely-populated markets. They had real challenges making the finances work in more rural/suburban markets because they are not really just an insurer; they own and operate the provider facilities themselves.
  • Members didn’t like being locked into using Kaiser-run providers; some would rather pay more to have access to a larger network. There are a limited number of non-Kaiser in-network providers, but most of the covered providers are Kaiser-employed providers, operating out of Kaiser-managed facilities.

Basically, they’ve done some of the things suggested in this thread. They’ve removed some of the administrative costs associated with billing/reimbursement operations between insurers and providers, since they are the insurance and the provider all-in-one. They’ve standardized their electronic medical record system, and then leveraged the EMR data to perform some value analysis of their operational and medical procedures. They do some light rationing of care (despite their claims to the contrary).

I have a number of friends and acquaintances who use Kaiser; none have ever complained about the quality of care. But then, they are mostly healthy individuals who don’t have chronic/pre-existing conditions, so you wouldn’t expect many issues from such a demographic to begin with.

116

My teacher friends all use Kaiser, and they are generally not thrilled with it. And my son-in-laws father died in their hospital, since they didn’t notice the blood clot in his leg.
They are not butchers, but the savings comes from limited choice in part.
On the other hand, I’d gladly go for a universal Kaiser model rather than the mess we have today.

117

For those who would rather just know the answers, here is a government study on the question:

http://digitalcommons.ilr.cornell.edu/cgi/viewcontent.cgi?article=1316&context=key_workplace

Besides tax benefits related to employer-based insurance and the American misbelief in the power of new medical technology, we’re also susceptible to medical advertising that causes us to choose pharmaceuticals that are double the price rather than purchase generics that are under-priced compared to the rest of the OECD. Of course, drug companies currently rely on US overspending, since patents do not last long enough after drug trials for them to be able to enforce a high cost for newly discovered drugs, and so are undercut by competitors, who did no research nor trials, just after launch.

118

My take on some of this is that the healthcare industry is a for-profit industry. And it’s run as a for-profit industry.

If I go to my primary doctor for a well care visit, the doctor will almost always recommend a couple of expensive drugs for minor problems and a couple of expensive specialist visits for minor problems.

And if you reject these recommendations, you are treated like you don’t care about your health and your life. As an example, I once complained about the inside of my ears being chronically itchy. So my doctor prescribed an ear drop.

I did not have two pieces of relevant information. One was that the active ingredients of this eardrop were hydrocortisone and acetic acid. The other was that the total cost of this medication was $400 an ounce. For a .5 ounce bottle, I paid $35 bucks. My insurance paid $180.

At that point I said “screw this, I’ll buy some white vinegar and hydrocortisone cream for $5 and whip up about 5K worth of this stuff. So I did.

And there were expensive allergy medicines that didn’t work any better than the cheap stuff and an eye drop a doctor tried to push on me for a problem I didn’t have. She did an eye exam and told my these drops would help my dry itchy eyes. But Inhad no complaint about dry itchy eyes. But apparently I have them and need expensive drops.

And this translates to more serious stuff. Many years ago I had a good friend that had late stage pancreatic cancer. He was having trouble digesting food so the doctor recommended this elaborate gastric bypass operation. And my friend wasn’t sure he wanted to do it. So I’m in the hospital room and his medical team comes in.I started to leave the room since I want family but they insisted that I stay and that they needed me there.
Essentially, I become an unwitting party to an intervention of sorts as they all tried to convince him to keep fighting, get the operation, you want to live, right?, the operation will alleviate all these problems, etc. etc. etc.

So he had this expensive surgery. He died a week later. After the fact when I did my research I discovered that the surgery ( when used for cancer patients) had 30% survival rate. Plus, immediately after the surgery I was in the elevator with a couple of his surgeons - they didn’t know I was his friend - and I overheard them say - in reference to my friend even though they used his bed number not his name- “that guy’s going to die.”

So he was sold on this useless expensive surgery that should have never been done. Because it’s a for-profit Business.

119

They do in Aus :slight_smile:

To be fair, that does happen in Aus when you select private care –

– but if you make the effort you can get a fair estimate –

In Aus you can get a binding price for some non-urgent, optional things, but normally private care is at a fixed price + contingencies: if you stay in longer than normal, you have to pay more. The hospital may swallow the cost if it’s their fault, and doctors may swallow the cost if the estimate they gave you turns out wrong: both could get into trouble for not respecting the estimate they gave you, so there is an incentive to do so, but normally it’s not explicitly contracted that there will be no additional costs in private care. For pregnancy, the mothers stay in private hospital is a bit open-ended: you leave when your insurance runs out, or when you want to go home. The day rate is fixed, but the total is kind of open.
I think that all this is a side effect of our “single payer with lots of exceptions” system. The system negotiates rates with the system, so they’ve done that work already, and people want to compare what they are getting in the private system with what they’d get free, and the system isn’t permitted to exploit users (for the same reasons that public health is funded, private health is regulated: it’s a human right).

120

Some more details of the plan, from the WSJ: