How Amazon & Co. Could Fix Health Care
Amazon, Berkshire Hathaway and JP Morgan haven’t said much about what their new joint venture will do to "provide U.S. employees and their families with simplified, high quality and transparent healthcare at a reasonable cost." It’s not hard to imagine, however, how the three companies could set up a large, closed system that could serve as a blueprint for the only disruptor with the ability to fix the entrenched, inefficient U.S. health care system — the U.S. government.
The worst thing the joint venture could do is try to use its bargaining power to bring down costs within the existing system. It’s not really big enough for that. The three partners have a combined 1 million of employees; the health care industry is the biggest employer in the U.S., and even if you add in the family members of Amazon, Berkshire and JP Morgan employees, that won’t be enough to go head to head with the medical juggernaut on doctors’ and nurses’ pay and the cost of pharmaceuticals. The partners need to start from scratch.
It’s well-known that the U.S. leads the world in health care spending but not in life expectancy. But the U.S. health care system is inferior to those of other rich countries on a number of technical parameters, too: For example, it has more hospital admissions for preventable diseases and more medical and lab errors than comparable countries. It ranks 30th in the world on "basic physical and mental health, health infrastructure and preventative care" according to last year’s Legatum Prosperity Index.
U.S. health care achieves similar or worse results compared with other Organization for Economic Cooperation and Development nations with a higher ratio of nurses per physician than any of them except Finland, Japan Ireland and Denmark — 4.3. France does fine, and has a higher life expectancy than the U.S., with 2.8 nurses per doctor. Doctors in the U.S. are massively overpaid compared with most of their OECD peers. A primary care physician makes $217,000 a year, almost five times the U.S. average wage; according to OECD data, the average general practitioner’s pay is higher than the average wage by a factor of four in Germany, three in France and two in Israel.
It’s interesting to imagine how three large companies could build a better system for themselves. Start with the doctors and medical professionals. According to the OECD, 25 percent of doctors and some 6 percent of nurses working in the U.S. are foreign-trained. Other OECD countries — especially Mexico, Canada and the U.K. — are already the biggest source of foreign-trained doctors for the U.S.; India is close behind, followed by the Philippines and Pakistan. This implies there’s already a functioning pipeline for getting the qualifications of doctors from these countries recognized. Amazon, Berkshire Hathaway and JP Morgan, with their combined administrative might, could turn this pipeline into a factory, bringing in enough foreign doctors exclusively to serve their combined workforce at more reasonable pay to average wage ratios.
Lower pay than in the rest of the U.S. health care economy would be justified by having to do zero insurance paperwork — something that forces U.S. doctors to hire extra staff and waste precious time. The companies would merely set pay levels based on tasks performed — something that, in much of Europe, falls to health care providers’ unions to negotiate with the government or with payer pools. That’s the system the joint venture would ultimately end up with. Amazon’s tech could help track the tasks in real time.
Importing the entire workforce sounds like a mammoth task, but then the U.S., according to the OECD, only has 2.6 practicing doctors per 1,000 population. At this rate, some 7,800 doctors would be needed to serve 3 million employees and their kin. If the German level of 4.1 doctors per 1,000 residents were the goal, some 12,300 doctors would be needed. That’s some 8 percent of the number of medical graduates OECD economies produce every year — not an impossible number to bring in. Add in telemedicine opportunities — whole clinics could be set up overseas on local budgets to do much of the necessary work — and U.S.-resident doctors who’ll accept a pay cut just to practice medicine and never deal with an insurance company again, and the task appears even more feasible.
Besides, the joint venture could consider offshoring some of the hospital care. The average cost of a hospital day in the U.S. was $5,220 in 2015, compared with $424 in Spain — a country with a higher average life expectancy than the U.S. One could fly business class from New York to Madrid every day to spend a night at a local hospital and it would still cost less than comparable U.S. care. Even Swiss hospitals are, on average, cheaper than U.S. ones. In quite a few cases, it would make sense to relocate an employee or family member to save on the hospital costs. Of course, the new venture would need to help employees get passports too.
Moreover, relocation could even work for people with chronic conditions requiring pricey pharmaceuticals. A recent IHS Markit study found that a basket of 30 innovative pharmaceuticals cost about a third as much in Germany, U.K., Spain and Italy as in the U.S. The U.S. protects its pharma market, making it difficult to import cheaper medicines than those produced by local companies — but it can’t ban companies with large overseas operations from exporting patients.
In other words, it’s possible for a pool of big, multinational U.S. employers with a relatively sophisticated workforce to go almost entirely outside the existing U.S. system and shake off the layers of useless regulation and bad practice that make it up. The cost savings would probably be considerable.
Such a system, however, wouldn’t be scalable beyond the biggest companies with mobile workforces: It would be hard to expand the doctor immigration pipeline or a massive medical relocation operation. It would still be worth building a separate health care system for big company employees, though, just to show the U.S. government how it could be done. Maybe someday there will be politicians courageous enough to start rebuilding U.S. health care from scratch, with less bureaucracy, fewer intermediaries, less protectionism, more efficiency and fairer prices.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
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January 31, 2018 at 10:04AM