By Dave Vreeland
This has been a tough year for the technology titans’ attempts to “fix” the U.S. healthcare system. Whether it’s the “disbanding” of Haven, the Amazon-Berkshire-JPMorgan venture to disrupt the healthcare industry earlier this year, or the recent announcements by Apple and Google that they are “scaling back” and “closing down,” respectively, their health units; 2021 will go down as the year the technology titans got their asses whooped (forgive the pro wrestling terminology, but I’m from Nashville) by the U.S. healthcare system – the industry Warren Buffet said was “a tapeworm in the American economy.” What should one make of this?
More has been written about the Haven failure because it happened early this year, but I’m sure much of the popular business press will say the same thing about all three; that the failures occurred because of:
- Lack of clear goals
- Lack of transparency
- Insufficient market power
- Perverse incentives
- Bad timing (i.e., global pandemic)
All of these things are likely true, but none get at what I believe to be the heart of the matter – that these industry disruptors have failed to affect materially the last 20% of the U.S. economy that they haven’t touched, largely because they haven’t been thinking big enough. Furthermore, their teams have consisted mostly of really bright, non-healthcare people who have a long history of getting the healthcare system wrong. As a long-time healthcare entrepreneur and technology investor, here’s some advice to the tech titans on how to get it right the next time.
The Non-System System
Our current healthcare system is actually a non-system that came about as more of an accident of history than some master design. Wage controls during World War II left employers with no ability to compete on salary, so many of them began competing on benefits. This resulted in the employer-based health insurance system we have today for about half of the 330M Americans that make up our country’s population. The other half are on some type of government system – mostly Medicare and Medicaid. Debates over the past 70 years about how to make a U.S. healthcare system more cost-effective and sensible, have predictably become political over topics of government overreach, freedom to select one’s own physician, and the features of capitalism that impact our healthcare system more significantly than any other western democracy.
One of the realities of this non-system is that, for average working people not on Medicare or Medicaid, healthcare is inextricably linked to one’s job. This makes the decision to change jobs much more challenging than it should be. I’m of the opinion that we will end up with an American form of single payer healthcare at some point in the next 20 years because much of the electorate that opposes it (the Baby Boomers) won’t be around in a decade. Millennials will begin to take control. This group has fewer concerns about privacy and they are more comfortable having the government handle things like healthcare for them.
For all of the conservatives out there who hate the idea of the U.S. further deepening a shift toward European Socialism, don’t worry. When this happens, I guarantee that there will be a thriving free market for those who want to “buy up” their healthcare. But in the meantime, this presents an extraordinary opportunity for the so-called “FAMGAW” companies (Facebook, Apple, Microsoft, Google, Amazon and WalMart).
A Prime Opportunity
Imagine if one of these companies began offering health insurance to its customers at a substantial discount to what we all pay today through our employers. Amazon is probably best positioned to do this through its Prime program, which boasts ~170MM or so American members. Between the data they hold today through Prime and Whole Foods, and the capabilities they have around logistics and pharmacy, this would not be a tough business for them to enter. Throw in a few small acquisitions that would enable primary care and the associated actuarial/claims management functions, and you’ve got yourself a payer/provider of some significant scope and reach. With any luck their approach will include more of a wellness rather than sickness focus. And I imagine that they will require some regular monitoring to ensure that their “members” are taking good care of themselves. This could happen.
Once this starts, I propose that it would be very hard to slow down, and the consequences for our healthcare system will be extremely interesting to watch play out. At a minimum, I believe that we will see rapid uptake from its customers who will just want to see what the program is like. The concept of hundreds of thousands of Americans segregating their health insurance from their employer will have an impact on employee relations for sure (a good thing in a free market), and the potential shock wave to the health insurance industry will be interesting to see play out as well (competition is good right?). There will be unintended consequences of course, and rejiggering of the way patients interact with those who provide care, but we’ve all seen this before.
Technology has changed every other industry in the last 30 years, generally for the better. I haven’t been to a mall or big box store in years, and I don’t miss it. And the tech titans can drive major changes in healthcare too. These large, capable, creative organizations all benefit from unlimited access to free capital but have been unable to crack the code to the U.S. healthcare system, simply because they aren’t thinking big enough. I realize this is a rare accusation, but in this case, I believe it is true.
Dave Vreeland is a well-known national expert on healthcare IT and the future of the healthcare industry. Building on more than 25 years of experience in healthcare management consulting, Dave is an active leader, investor and advisor in early stage digital health companies. He serves as senior managing partner at Caduceus Capital Partners, LLC, investing in early stage digital health companies poised to make a difference in shaping the way healthcare is accessed, delivered, and paid for across the country.