Walmart, Not Amazon, May Turn Out To Be The Real Health Care Disruptor

https://www.investors.com/news/walmart-humana-amazon-disrupt-health-care/

Image result for Walmart, Not Amazon, May Turn Out To Be The Real Health Care Disruptor

Every Amazon (AMZN) flirtation toward the health care industry has sent hearts racing on Wall Street. Yet Amazon appears to be having commitment issues, and others have leapt while Jeff Bezos hesitated. Now comes a possible Walmart (WMT)-Humana (HUM) merger. A Walmart acquisition of the insurer could fundamentally reshape health care delivery in ways that Amazon may have trouble matching.

A Walmart-Humana deal could potentially transform the health care market for seniors, a demographic that is critical for both companies.

Walmart already operates about 4,500 in-store pharmacies and 2,900 vision centers, but a Humana deal would likely accelerate its efforts in developing in-store clinics. The clinics haven’t been a knockout success, but Walmart has been learning, wrote Tracy Watts, U.S. health reform leader at Mercer, in a blog post. “This partnership could foster new ways to bring people what they want and need,” she wrote, highlighting health care access in rural areas.

CVS Health (CVS), which is in the process of acquiring Aetna (AET), is planning to revamp its drugstores to provide more health services. Walmart has greater financial wherewithal to execute the strategy and its supercenters may be a more natural fit for health services.

Strategic Merits For Walmart-Humana

A Walmart-Humana tie-up has strategic merits for the retail giant, wrote Stifel analyst Mark Astrachan. He expects it would drive greater store traffic and produce health care cost savings, helping the discounter to keep investing to fend off Amazon.

Savings would come from closer ties to Humana, the largest remaining independent pharmacy benefits manager. That would help to reduce drug prices for Walmart’s 1.5 million U.S. employees, Astrachan wrote.

Humana recently purchased a major stake in the home health care business of Kindred Healthcare, a natural fit for Walmart’s home delivery business.

Still, there would be challenges. Piper Jaffray analyst Sarah James sees hurdles to staffing up clinics amid a nursing shortage that’s pushing up wages. She also questioned how attractive a merger would be for Humana. Humana has an enviable Medicare position while Walmart has a smaller store base compared to CVS Health and Walgreens Boots Alliance (WBA).

Still, Humana shares rose 4.4% on the stock market today, even as the Dow Jones, S&P 500 index and Nasdaq composite all lost about 2% or more. Meanwhile, shares of Walmart lost 3.8% and Amazon skidded 5.2%.

Amazon Threat Spurs Action

So far Amazon’s disruptive impact on health care has been all about what others are doing. Since reports last summer that Amazon might enter the retail prescription industry, the shockwaves have set in motion one deal after another. First it was CVS buying Aetna and beginning to offer same-day delivery in major markets, and next-day nationwide. Albertsons grabbed the Rite Aid (RAD) stores not bought by Walgreens. Last month, Cigna (CI) announced the purchase of Express Scripts (ESRX), the largest of the pharmacy benefit managers.

Options to enter the prescription drug business have narrowed for Amazon but haven’t been closed off entirely. One potential avenue would be acquiring Walgreens.

In January, Amazon announced a health care venture with JPMorgan Chase (JPM) and Berkshire Hathaway (BRKB). Health care stocks tumbled amid fear that Amazon would use the same formula that slayed book sellers and department stores. The scariest part: The companies say they have no intent to earn a profit from the effort. Yet they also confessed to a lack of any coherent plan for putting still-to-be-formed cost-saving ideas to work.

 

 

We Won’t Get Value-Based Health Care Until We Agree on What “Value” Means

https://hbr.org/2018/02/we-wont-get-value-based-health-care-until-we-agree-on-what-value-means

feb18-27-value-01

Some health care leaders view with trepidation the new, disruptive health care alliance formed by Amazon, Berkshire Hathaway, and JPMorgan Chase. But I’m excited because disruption is all about delivering a new level of value for consumers. If this trio can disrupt the United States’ health care system into consistently delivering high-value care, we will all owe them our gratitude.

First, their leaders — Jeff Bezos of Amazon, Warren Buffett of Berkshire Hathaway, and Jamie Dimon of JPMorgan Chase — must think deeply about what “value” actually means for the companies and individuals they will serve and for the people and organizations they will engage to deliver care.

Then they need to consider how they will bridge the divergent interpretations of value. It turns out one reason there’s been such little progress in creating a value-based system is that the stakeholders in the U.S. health care system — patients, providers, hospitals, insurers, employee benefit providers, and policy makers — have no common definition of value and don’t agree on the mix of elements composing it (quality? service? cost? outcomes? access?).

That’s the big takeaway of University of Utah Health’s The State of Value in U.S. Health Care survey. We asked more than 5,000 patients, more than 600 physicians, and more than 500 employers who provide medical benefits across the nation how they think about the quality, service, and cost of health care. We focused on these groups because we feel their voices have not been heard clearly enough in the value discussion. What we discovered is that there are fundamental differences in how they define value in health care and to whom they assign responsibility for achieving it. Value, it seems, has become a buzzword; its meaning is often unclear and shifting, depending on who’s setting the agenda. As a result, health care stakeholders, who for years thought they were driving toward a shared destination, have actually been part of a fragmented rush toward different points of the compass.

But the Utah survey’s findings also suggest a straightforward (though not simple) way to overcome this confusion: stop, listen, and learn. The most effective thing that stakeholders can do to create a high-value health care system is to pause in their independent pursuits of value to describe to each other exactly what it is they seek. Jumpstarting this stakeholder dialogue will require real leadership from executives in business, health care delivery, academic medicine, and patient advocacy groups. They’ll have to muster the courage to say to their constituencies, “The path toward value that we charted may not have been the right one.”

Those dialogues should happen at three levels: nationally, among representatives of stakeholder groups; institutionally, among partners in the care delivery process; and individually — for example, between patients and their physicians, and between employer sponsors of health plans and their employee beneficiaries.

There are several examples of the fundamental value misalignments that could be starting points for these discussions. The first concerns the relative importance of health outcomes. For physicians like me, clinical outcomes are paramount; health improvement and high-quality care are essential components of health care value. And we assume that patients share that perspective. But, it seems, they don’t. When the Utah survey asked patients to identify key characteristics of high-value health care, a plurality (45%) chose “My Out-of-Pocket Costs Are Affordable,” and only 32% chose “My Health Improves.” (In fact, on patients’ list of key value characteristics, “My Health Improves” was slightly below “Staff Are Friendly and Helpful.”) Given the chance to select the five most important value characteristics, 90% of patients chose combinations different from any combination chosen by physicians. In general, cost and service were far more important in determining value for patients than for physicians.

Frankly, I was stunned by the degree of this misalignment between patients and physicians (and, by extension, the care delivery organizations the doctors work for). This disconnect alone could account for a substantial portion of the Sisyphean lack of progress we’ve seen. But there are plenty of others. Notably, the Value survey found a striking lack of consensus on who had responsibility for ensuring that health care embodies the desired high-value characteristics. Moreover, the survey’s respondents generally displayed limited understanding of how the health care system works more than a step or two beyond their direct experience. This led to responses at odds with reality — for example, only 4% of patients and physicians recognize that an employer’s choice of health plan affects out-of-pocket costs.

Both of these kinds of misalignment — regarding the relative importance of outcome, cost, service, and quality, and who is responsible for achieving specific value characteristics — demonstrate the core problem: Stakeholders have not communicated with each other effectively, at the macro and micro levels, on what value means to them. I have two thoughts on how to start the process of getting communications and information flowing.

At the micro level, we should leverage the growing power of physician- and hospital-review systems to gather more (and more-sophisticated) information on what is most valued by individual health care consumers. Our system alone collects more than 3,500 patient comments a week. Now we need to apply our growing computational capacities to deeply mine that data both within and among systems to create an enhanced patient experience that is informed by how they define value. And business leaders should expand their companies’ efforts to track and analyze — and educate their employees about — the multiple dimensions of value in the health benefit plans they offer.

At the macro level — national, regional, and inter-institutional — major organizations should step up to convene initial rounds of stakeholder dialogues. Academic medical centers (AMCs) such as University of Utah Health are well positioned to be conveners. (The Utah Value Forum this month brought together regional stakeholders to address the challenges we all face.) AMCs are also uniquely qualified to undertake rigorous research to better understand the misalignments and misunderstandings found in studies like the Value survey. In fact, more than simply being capable, I think the public service missions of AMCs virtually obligate them to be leaders in this essential effort.

But they are not obligated to lead alone, nor would their solo leadership be compelling enough to bring all stakeholders to the table. We need corporate health benefit plans, for-profit health systems, and insurers — at a minimum — to help lead this effort.

If Messrs. Bezos, Buffett, and Dimon really want to drive major change in the U.S. health care delivery system, they should help convene value-focused dialogues, providing the kind of political and economic cover necessary to bring stakeholder groups into these conversations. And they shouldn’t stop there: They’ll have to remind everyone that these conversations aren’t only about cost containment — that “value” means more than just what we pay. (Or, as Buffett put it in one of his famous chairman’s letters, “Price is what you pay; value is what you get.”)

They should partner with providers, hospitals, and health systems to develop more-effective provider/hospital review systems and other methods of enhancing communication among parties in the care delivery process. They should seed pilot projects aimed at bridging the gaps in patients’, physicians’, and employers’ definitions of value. And being the smart, creative, bold people they are, they should help guide all stakeholders through the difficult compromises necessary to create a collective vision of a high-quality, patient-focused, cost-effective health care system.

That would truly be disruptive.

 

 

USA Today editorial board: Amazon, Berkshire Hathaway, JPMorgan can’t ‘fix our nonsensical health care system’

https://www.beckershospitalreview.com/hospital-management-administration/usa-today-editorial-board-amazon-berkshire-hathaway-jpmorgan-can-t-fix-our-nonsensical-health-care-system.html

Monopoly Medicine - How Big Pharma Stops Competitors Monopolizes Health Industry 1

While health insurers and benefit managers saw stocks tumble on news Amazon, Berkshire Hathaway and JPMorgan Chase & Co. will enter the healthcare arena, the editorial board at USA Today isn’t convinced the move will be as disruptive as some think.

In an opinion piece published Feb. 20, USA Today editors wrote, “To BBD [Jeff Bezos, Warren Buffett and Jamie Dimon] we say: Go for it. If you can come up with ways to provide your employees with better health care for less money, more power to you. To the rest of the country we would say this: Don’t get too excited. Not even a company as crafty as Amazon, or a bot as all-knowing as Alexa, can fix our nonsensical health care system.”

USA Today said the reason an Amazon-Berkshire-JPMorgan company won’t create overarching change is because U.S. healthcare is built upon an “upside-down” architecture. They wrote providers and drug companies “have monopoly or near-monopoly powers” to set prices, while employers and payers are much more fragmented.

“The three companies — particularly Amazon — are known for their ability to disrupt industries. But in health care, they aren’t up against an old-school industry fallen behind the times; they’re facing powerful monopolies or near-monopolies brimming with technology of their own,” according to the report.

To view the full opinion piece, click here.

https://www.usatoday.com/story/opinion/2018/02/20/amazon-berkshire-hathaway-jpmorgan-chase-cure-editorials-debates/301127002/

https://wakeup-world.com/2016/08/27/monopoly-medicine-how-big-pharma-stops-its-competitors-and-monopolizes-the-health-industry/

 

 

 

PwC Strategy: 12 plays for disruptors in healthcare

https://www.beckershospitalreview.com/hospital-management-administration/pwc-strategy-12-plays-for-disruptors-in-healthcare.html

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We see three classes of potential plays for a consortium of companies that band together, ranging from the least disruptive (and quickest to implement) to the most disruptive (with the longest time to implement).

In early February, Amazon, JPMorgan Chase, and Berkshire Hathaway announced a partnership to tackle rising healthcare costs for their U.S. employees.

The announcement, which didn’t do much beyond outlining the formation of the partnership, is a sign of the times. The details of the Amazon–JPMorgan Chase–Berkshire Hathaway plan, which, notably, does not involve a health industry incumbent, have yet to be fully revealed. Although the three companies have a substantial number of U.S. employees — 1.1 million between them — they are not aiming to produce value via scale. The consortium’s stated goal is to help improve health costs via technology, and to create value by providing greater transparency and competition, reallocating risk, and eliminating waste and intermediaries.

But the announcement is interesting for a few reasons. Even though it is directed at the companies’ own employees, it highlights the types of capabilities and platforms that may be needed to win in the future health marketplace. It points to the potential for new entrants to disrupt incumbents in insurance and care delivery. And it throws into relief the kinds of bold moves that resilient players can afford to make.

The Plays

A consortium between companies with complementary capabilities and scale has the potential to optimize the matching of supply and demand within healthcare via new mechanisms (i.e., exchanges), the facilitation of easier transactions (including faster, multichannel delivery), and new products (such as wellness and healthcare bundles). And as a consortium begins to target health spending successfully, it could move from lower to higher clinical complexity and from local to national marketplaces.

Accordingly, we see three classes of potential plays for a consortium of companies that band together, ranging from the least disruptive (and quickest to implement) to the most disruptive (with the longest time to implement). They are incremental innovation (testing the waters with gradual and piecemeal innovation); technology and analytics (enabling the improvement and redesign of the existing system); and radical disruption (creating new platforms, marketplaces, and ecosystems).

Incremental Innovation Plays

  1. Buy/partner with a third-party administrator. Use the buying power provided by the companies’ large number of members to buy or partner with a third-party administrator, thus removing the need for payors. The service could then be extended to other employers.
  2. Offer near-site clinics. Leverage the combined physical footprint of the consortium members to invest in up-front care that would in turn reduce downstream hospital costs. This would include partnering with facilities/care delivery providers and recruiting general practitioners to offer on- or near-site primary care clinics.
  3. Enable direct-to-provider contracting. Segment the employee base into groups — e.g., chronic conditions, healthy, risky — and directly contract with providers to manage those populations.
  4. Enter pharmaceutical/durable medical equipment (DME) distribution and manufacturing. Ship drugs in one convenient monthly package directly from manufacturers, use cloud computing to create a more efficient pharma supply chain. A consortium could potentially expand into the manufacturing of biosimilars and generics drugs.

Technology and Analytics Plays

  1. Offer virtual services. Build or host a network of virtual care services such as telehealth and second opinions, and eventually evolve to operate a “virtual hospital” in which specialists supervise medical care from a distance.
  2. Offer a customized consumer (member/employer) portal. Leverage data and analytics capabilities to personalize consumer engagement and experience, provide targeted concierge services, and integrate health and productivity incentives.
  3. Offer data-driven insights. Use data collection, tracking, and management to automate discovery, fuel AI-enabled decision making, and offer insights to stakeholders on, for example, the relative effectiveness of wellness programs.
  4. Offer services for providers/employers. Leverage data, technology, and analytics capabilities to relieve the administrative and regulatory burden for providers and employers.

Radical Disruption

  1. Develop a B2B and B2C clinical capacity exchange/marketplace. Much as Airbnb does with rooms and OpenTable does with restaurant tables, enable care-delivery providers to monetize current and excess capacity and let consumers identify, compare (on price, quality, and availability), and book needed clinical capacity at the required time and for the needed procedure.
  2. Develop a direct-to-employer (D2E) reverse auction platform. Similar to a private exchange, the D2E platform would let employers segment their employee base by micro geographic and risk segments, aggregate similar risk pools across employers, and enable payors or health plans to offer customized plan options for consumers. Shortening the distribution chain and bundling healthcare products and services would make healthcare more shoppable.
  3. Roll out an encounter-based, claimless model. Partner with large care-delivery organizations that cover the full continuum of care and are in risk-sharing/capitated arrangements to create an encounter-based, claimless network. For certain populations or certain types of care, patients would have unlimited access to physicians without having to file claims.
  4. Develop next-generation healthcare connectivity platform. Create a consumer-centric, plug-and-play connectivity platform, aimed at improving the overall health, wealth, and productivity of individuals. Much in the same way that a financial portal accommodates a range of products and services, this platform would allow payors, providers, consumers, and external partners to coordinate whole health and wellness products and services. Imagine logging onto an Amazon-like portal, filling out a risk assessment, receiving advice, interacting with nurses, and having Alexa act as a concierge to set up appointments, order pharmaceuticals, and provide behavioral nudges.

The Responses

Regardless of the plays they pursue, consortia will force incumbent stakeholders to create a more competitive market and more clearly define their value. As such, they will only add to the pressure being placed on the industry by disruptive and aggressive mergers, such as the one between CVS and Aetna.

The fact that a new group of entrants, blessed with deep pockets and strong capabilities, is potentially entering the market only heightens the urgency for the industry to focus on its strategy. Companies that react with one-off moves to respond to these announcements, or that stand still, are going to get disrupted. At the same time, in this evolving landscape, resilient first movers and fast followers will have the opportunity to gain a sustainable advantage. As we’ve noted, there are a series of no regretsoffensive, and option value moves that can increase all stakeholders’ ability to remain resilient and win in such a turbulent landscape.

No regrets moves, which make sense regardless of how the future develops, would include payors developing more effective technology and analytics, providers creating more holistic care protocols, and pharmaceutical companies teaming up with employers to manage costs more effectively. All players would benefit from the ability to explain and justify their prices and link them clearly to value.

Offensive moves, aimed at enabling the organization to get to a strategic destination first or faster, include providers partnering with new employer consortia to streamline the drug supply chain, pharmacy benefit managers (PBMs) expanding their business model to include broader medical benefits, and employers creating their own health consortia.

Option value moves offer a more nuanced way for companies to approach the future. These are low-risk, low-regret initiatives that preserve or afford the opportunity to participate in new markets and develop new products. They could include PBMs providing value-added services, such as tying reimbursements to the performance of high-cost specialty drugs, or retail pharmacies working with large employers to create near-site clinics, or employers considering forming their own consortia.

As we noted at the outset, a great deal is still unknown about the intent and potential of the Amazon, JPMorgan Chase, and Berkshire Hathaway health consortium effort. But one thing is clear: All stakeholders in the healthcare ecosystem need to ensure that their business models are resilient and allow for timely responses and the flexibility to evolve.

 

Prime for Disruption

https://www.chcf.org/blog/prime-for-disruption/

A line graph titled "Cumulative Growth Compared to Inflation."

 

Earlier this week, Amazon.com Inc., JPMorgan Chase & Co., and Berkshire Hathaway Inc. jolted Wall Street with their announcement of a joint venture designed to reduce health care costs for their combined one million US employees. It is exciting to see innovative private sector companies lend their intellectual and financial capital to a seemingly intractable issue that has plagued the American economy for decades. About 18 percent of our nation’s financial output is now devoted to health care. For decades, health care costs have outpaced overall economic growth, and the gap is projected to remain to remain at three percentage points a year.

How the High Cost of Care Affects Employers – and Everyone Else

Employees directly and indirectly shoulder these costs. The average premium that employers and their workers pay for a family plan in California now exceeds $1,600 a month. Employer-based family health insurance premiums in the state have increased by 234% over the last 15 years, nearly six times the increase in the state’s overall inflation rate. Every dollar spent on health care is a dollar unavailable for something else, such as education, affordable housing, and environmental protection.

Sixty-six percent of working California families face a deductible of $2,000 or more for their employer-based coverage, including many without high-deductible health plans linked to tax-advantaged health savings accounts.

Increasingly, health care is unaffordable for all of us—not just businesses like Amazon and its workers, but for retirees, the self-employed, people seeking employment, and low-income Californians who aren’t eligible for public coverage. The Affordable Care Act (ACA) attempted to address the cost burden for those with employer coverage by creating disincentives for employers to simply pass on unaffordable premiums, and by capping the share of premiums health plans spent on overhead and profit. For people who shop for insurance coverage on the individual market, the ACA provided federal tax credits to offset premium and cost sharing.

While these and other efforts have helped, more work is needed. Too many families still struggle to afford health care. In 2017, 37% of Americans with health insurance found it difficult to afford premiums each month. Forty-three percent said it was hard to meet their deductibles before coverage kicked in. Among California workers with an aggregate family deductible, 66% faced a deductible of $2,000 or more in 2016.

At least 40% of adults say they worry about being able to afford health care services, losing their insurance, or being able to afford prescription drugs.

What We Already Know About Reducing Health Care Costs

Addressing the affordability of care in California and throughout the country requires lowering the underlying cost of care across market segments. Many efforts are already underway. Health insurance companies, large self-funded employers, and public purchasers of care often deploy management strategies to reduce the use of expensive tests, high-cost prescription drugs, and duplicative services. The most common strategies include prior authorization, patient education for better clinical decisionmaking, chronic disease initiatives, and pushing the cost to employees through deductibles and other cost-sharing tools.

To date, the results of these initiatives have been mixed. The findings are consistent with a growing body of academic research that suggests the real driver of health care costs is price, not increased demand. If that is the case, the solution might be to create a market that rewards high-value providers and cost-effective drugs. This type of strategy would rely on tools like reference pricing (individual drugs are grouped by therapeutic class and payment is limited to the price of the cheapest drugs in each class), value-based insurance design (copayments are reduced or eliminated for the most efficient, effective services), or high-deductible health plans.

Unfortunately, consumer-driven approaches have also had limited impact. While companies like Amazon might develop new technologies to enable patients to easily compare, shop for, and purchase health care services in a competitive marketplace, to date these types of tools have not succeeded in reducing costs or changing provider behavior in California. More to the point, introducing blunt consumer-facing financial incentives may run counter to the overall goal of affordability. Everyone should have access to the care they need at a price they can afford and not face care that is rationed by their ability to pay for it.

The Promise of Scale

Perhaps the biggest advantage of the new joint venture is its size and reach. The most promising solutions today are found in large, integrated delivery systems. They have consistently shown that the best approach is to give providers simple, strong financial incentives to make care more efficient and effective. Because this type of model works best on a large scale, the ideal approach is for multiple public and private purchasers of care to come together to align quality reporting requirements, reward value, and support investments in improving health outcomes across entire groups of people. We are already seeing this happen in California and other states.

No one group or slice of the private health care market has the power to really drive down health care costs for everyone. It will take many, many players in the private and public sectors working together to align their efforts. The foundation of payment and delivery reform laid by the Affordable Care Act is a good place to start. Technology is critical and necessary – but it is not by itself sufficient. Leaders also need to pull policy levers, fix payment systems, and spark collaboration between purchasers. Innovators like Amazon, JPMorgan Chase, and Berkshire Hathaway will no doubt make material contributions. Their leadership, in tandem with that of other large purchasers, offers a prime opportunity to make care more affordable for everyone.

Some Jobs Are Best Left to the Nonprofits

https://www.bloomberg.com/view/articles/2018-02-01/some-jobs-are-best-left-to-the-nonprofits?utm_campaign=KHN:%20Daily%20Health%20Policy%20Report&utm_source=hs_email&utm_medium=email&utm_content=60406871&_hsenc=p2ANqtz–p6LLq3KGruyf8cxGYEWvzT4LzONfY0U7Nn1r39Ijl9mJf2I9nxEjZ1SABngM4CXcNNOxmf9vg_kjpMkg1MO_G4W_Lrg&_hsmi=60406871

Health care might be one of them. Amazon, Berkshire Hathaway and JPMorgan certainly hope so.

Amazon.com Inc., Berkshire Hathaway Inc. and JPMorgan Chase & Co. are publicly traded, profit-oriented corporations. 1 So it is interesting that when they announced their new joint health-care venture this week they made a point of saying it would be “an independent company that is free from profit-making incentives and constraints.”

Interesting but maybe not all that surprising: Around the world, health, life and property insurance, as well as various other financial services, have long been provided by nonprofit organizations, mostly in the form of customer-owned mutuals. From the 1960s through 2000s, wave after wave of conversions turned many of these entities — especially in the U.S. and U.K. — into shareholder-owned for-profit corporations. But since the global financial crisis, the idea that corporations out to maximize shareholder returns might not always be the best at managing financial and other risks has undergone something of a revival.

Just to be clear: It looks like this new Amazon-Berkshire-JPMorgan entity will be owned by the three companies, not the employees it serves. That is, it won’t technically be a mutual. But the three companies’ apparent belief that the for-profit-insurer-dominated private health-care market in the U.S. isn’t cutting it — and that “profit-making incentives” are at odds with improving health-care delivery and cutting costs — got me thinking about the strengths and weaknesses of mutuals and other nonprofits relative to conventional corporations.

Mutuals that are owned by and distribute excess cash to their customers have been around for centuries, in many cases predating their for-profit counterparts. Some of the first insurance companies were organized in the 1600s and 1700s in the Netherlands and U.K. as customer-owned cooperatives, and the mutual organizational form has remained prominent in life and property insurance ever since. The 1800s saw an explosion of mutual activity, with fraternal organizations, trade associations, labor unions, social reformers and philanthropists starting co-operative lenders, health-care providers, pension funds, groceries, farming enterprises and even factories. This continued into the 20th century, although in Europe these mutual organizations were often co-opted or supplanted by government social insurance programs. 2

In the U.S., mutuals and nonprofits with mutual-like characteristics have continued to play major roles in insurance, money management, health care and other fields — including outdoor gear, which is top of mind at the moment because I recently spent a bunch of money at customer-owned Recreational Equipment Inc. But these mutuals and co-ops have just spent several decades on the defensive, with “demutualizations” in which mutual customers are given shares in newly created for-profit corporations transforming sector after sector.

I think this trend started with mutual funds, sort of. The first mutual fund, Massachusetts Investors Trust, was founded in 1924 as a true-blue customer-owned nonprofit. Most of the funds that followed in its footsteps were controlled by for-profit investment advisers, but for decades after the 1929 stock-market crash, those advisers acted more like cautious trustees than risk-taking profit-maximizers. Things changed during the booming stock market of the 1960s, with fund advisers getting much more aggressive in their investing and marketing, and in some cases acquiring competitors. In 1969, Massachusetts Investors Trust threw in the towel, demutualizing and transforming itself into Massachusetts Financial Services, which is now a subsidiary of Canada’s Sun Life Financial Inc. Mutual funds themselves are all still technically mutual, but the business (with one huge exception that I’ll get to in a moment) really isn’t.

Savings and loans demutualized in a more formal fashion in the 1980s, after the Garn-St. Germain Depository Institutions Act of 1982, in an attempt to attract new capital into the struggling industry, made it much easier for customer-owned S&Ls to convert to shareholder-owned corporations. (Credit unions remain the banking industry’s mutual holdout in the U.S.) Then life insurers began a great demutualization wave in the 1990s, with many of the industry’s biggest names — MetLife Inc., Prudential Financial Inc., John Hancock — switching from customer-owned to publicly traded. The Blue Cross and Blue Shield Association of mutual health insurers began allowing its members to switch to for-profit in 1994. And with Sweden, of all places, leading the way in 1987, stock exchanges began demutualizing as well.

For exchanges, it’s pretty easy to make the case for demutualization. With technological change, deregulation and internationalization transforming their business landscape, single-country, member-owned mutuals were in no position to compete. Publicly traded exchanges could raise capital, merge across national lines and take other steps that wouldn’t have been practical under a mutual structure.

Access to capital and increased flexibility have been offered up as leading reasons for demutualization in other industries as well. Also, in an influential pair of 1983 papers, finance scholars Eugene Fama and Michael Jensen argued that mutuals and other nonprofits lacked some of the control mechanisms — the threats of hostile takeover and shareholder activism, mainly — that kept managers of publicly traded corporations from taking advantage of owners. Empirical research since then has shown demutualized companies to be more efficient and achieve higher returns on capitalthan their mutual peers.

But that’s not the end of the story. It’s not entirely coincidental that the mass demutualization of the savings and loan industry in the 1980s was followed by an industrywide meltdown that cost taxpayers more than $100 billion. And remember Northern Rock, the U.K. institution that suffered a bank run in 2007 that was an early harbinger of the financial crisis? It had demutualized in 1997. On the whole, mutual financial institutions seem to have held up better during the financial crisis than their for-profit competitors. Mutual executives have fewer incentives to take risks, and that can sometimes be a good thing. There’s also evidence that mutual executives do more than just pay lip service to their customer-owned status. Mutual auto insurers in the U.S. — especially those such as Amica Mutual and USAA that pay regular dividends to customers — pay out a higher percentage of their premiums in claims than for-profits, according to one recent study. Mutual insurers perennially top for-profits in customer satisfaction rankings, and credit unions perennially top banks (although the banks have been catching up lately).

All in all, then, it seems that mutuals are, if not necessarily better than investor-owned for-profit corporations, pretty nice to have around. During and after the financial crisis, consumers seemed to take notice of this, with mutuals’ share of the global insurance market jumping from 23.6 percent in 2007 to 27.8 percent in 2013, according to the International Cooperative and Mutual Insurance Federation. That share has since sagged backed to 26.8 percent, though. Mutuals’ advantages may be less apparent when times are good.

Also, while there are multiple forces pushing mutuals to demutualize — not least the possibility of stock-market riches for their executives — there’s very little pushing in the opposite direction. The only major conversion to mutual status that I can think of in the U.S. over the past half century was Vanguard Group Inc., which arose in 1974 out of a power struggle at for-profit mutual fund adviser Wellington Management during which ousted president John C. Bogle talked the board members of Wellington’s mutual funds into seizing effective control of the whole operation. That was a rare case where mutualization seemed to help a top executive’s career prospects (although in the long run it probably resulted in Bogle making a lot less money than if he had simply gotten a job at another mutual fund company).

Starting new mutuals isn’t easy, either: The health-insurance co-ops created by the Affordable Care Act were undeniably a bust, although there’s disagreement over whether inadequate support or design flaws doomed them. And New York’s Freelancers Union, another relatively recent addition to the mutual landscape, got out of the health insurance business in 2014 after ACA rules made it impractical.

Once up and running, though, mutuals can be formidable competitors — as everyone else in the mutual fund industry can attest after decades of rapid growth at low-fee index-fund innovator Vanguard. Health care in the U.S. could sure use some low-fee innovation. Maybe, just maybe, Amazon, Berkshire and JPMorgan will find a nonprofit, mutual-ish way to get there. There are precedents: Nonprofit investment giant TIAA was founded by steel magnate Andrew Carnegie; the mostly nonprofit Kaiser Permanente health-care system was the doing of another industrialist, Henry J. Kaiser. For modern magnates Jeff Bezos, Warren Buffett and Jamie Dimon, creating something like that — or something better — would make for a pretty nice legacy.