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.

 

Can Amazon do to health care what it did to books?

http://money.cnn.com/2018/02/01/news/economy/amazon-health-care/index.html

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First books. Then groceries. Now health care?

Amazon shook up the health care world on Tuesday, announcing it was partnering with fellow heavy hitters Berkshire Hathaway (BRKA) and JPMorgan Chase (JPM) to address soaring costs.

Amazon (AMZN), which has advanced light years from its origins as an online bookseller, has had a dramatic impact on many of the industries it’s touched. When it moved into cloud services and streaming shows, it left rivals scrambling to catch up. Last year, it bought Whole Foods, shaking up the grocery space.

The company is now one of the most valuable in the U.S. and its founder, Jeff Bezos, one of the richest people in the world.

But Bezos and his peers, Warren Buffett and Jamie Dimon, are taking on one of the nation’s thorniest challenges. Making health care more affordable has bested savvy business leaders in many industries. The announcement was met with cautious optimism and lots of skepticism.

Related: Jeff Bezos, Warren Buffett and Jamie Dimon want to fix health care

Not much is known about the threesome’s venture — a yet-to-be-named company that will give the firms’ U.S. employees and their families a better option on health insurance and will not be motivated by profit. Experts, are betting that the firm will eventually expand its services to other companies if the effort proves successful.

Health care costs have soared for both employers and their workers over the past decade. Premiums have jumped nearly 50% for family coverage since 2008 and more than tripled since 1999. Meanwhile, employees are shouldering more of the cost when they actually get medical care because their deductibles and co-pays are going up.

Amazon, however, is a master at wringing out inefficiencies in the supply chain. This could prove particularly useful in the health care arena, which is known for its bloat.

“One thing we know for sure is there’s a lot of overhead costs in health care,” said Frederick Isasi, executive director of FamiliesUSA, a health care advocacy group.

While many employers have tried to tackle health insurance costs in the past, they often didn’t have the bandwidth or resources to devote to the issue, Isasi said. The new venture, however, will be focused on its mission and will have the financial backing of three strong firms.

Some of the ways Amazon could use its know-how to make a dent in prices: Negotiate rates directly with health care providers and drug manufacturers, use technology to ease consumers’ ability to make appointments or consult with doctors outside of the office and improve access to price and quality information about physicians, procedures and prescriptions to allow consumers to shop around, Isasi said.

Amazon could also improve Americans’ interaction with their insurance companies and providers, which all-too-often involves ancient technologies such as faxing, said Bob Kocher, a partner who specializes in health care information technology at Venrock, a venture capital firm. After all, Amazon invented one-click ordering on its retail site. It could develop a similar process for paying medical bills, even grouping invoices for doctors, facilities and labs for care that takes place in a hospital, for instance.

And Amazon could make it easier for patients and providers to access their medical records, which would also reduce costs. The new venture could store all that information in the cloud, said Michael Pachter, managing director for equity research at Wedbush Securities.

That way “everything is all together in one place,” he said.

 

Podcast: ‘What The Health?’ The State Of The (Health) Union

Podcast: ‘What The Health?’ The State Of The (Health) Union

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In his first State of the Union Address, President Donald Trump told the American public that “one of my greatest priorities is to reduce the price of prescription drugs.” But that message could barely begin to sink in before other health news developed: The director of the Centers for Disease Control and Prevention was forced to resign Wednesday after conflict-of-interest reports.

Meanwhile, outside the federal government, Idaho is proposing to allow the sale of individual insurance policies that specifically violate portions of the Affordable Care Act. And three mega-companies — Amazon, Berkshire-Hathaway, and JPMorgan Chase — say they will partner to try to control costs and improve quality for their employees’ health care.

This week’s “What The Health?” panelists are Julie Rovner of Kaiser Health News, Alice Ollstein of Talking Points Memo and Julie Appleby and Sarah Jane Tribble of Kaiser Health News.

Among the takeaways from this week’s podcast:

  • Despite Trump’s strong rhetoric in the State of the Union Address, the president has taken few actions during his first year in office to reduce drug prices.
  • The president touted that Republicans had repealed the health law’s requirement that individuals get health insurance or pay a penalty. But that change in the law doesn’t go into effect until 2019, so his comments could be confusing to some taxpayers.
  • Idaho officials have announced that they are going to allow insurers to issue policies that don’t meet all the criteria of the federal health law. But it’s not clear that insurers are interested in participating in the experiment.
  • “Alexa, send me my Lipitor!” Can Amazon’s announcement that it and two other corporate behemoths are taking on employees’ health care create a new formula for keeping costs down and improving quality?

 

Can Apple Take Healthcare Beyond the Fax Machine?

https://smarthealthit.org/2018/01/can-apple-take-healthcare-beyond-the-fax-machine/

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Despite spectacular advances in diagnostic imaging, non-invasive surgery, and gene editing, healthcare still faces a lackluster problem: many patients can only get health records from their doctor if the fax machine is working. Even when records are stored electronically, different chunks of every patient’s health information sit in the non-interoperable, inaccessible electronic record systems in different doctor’s offices.

Anyone who needs her medical files gets them either printed or faxed, or has to log on into separate portals for each doctor and hospital, and even then getting view-only access. View-only apps can’t access data to help patients share information with family and healthcare providers, make decisions, monitor disease, stay on course with medications, or just stay well.

On the positive side, this is changing, sort of. Using the iPhone Health app, patients will soon be able to download and view health records on their phones. On the one hand, don’t get too excited–it will initially only work for patients at a handful of institutions, Android users are still out in the cold, and the data available will be limited. And, some dismiss the impact of Apple’s move because of others’ failures to give patients control of their records.

However, Apple’s move is a decisive and consequential advance in patients’ struggle to get a copy of their own health data. Apple wisely chose to use open, non-proprietary approaches that will float all boats–even for Android users.

Every patient deserves a ‘bank account’ of her health data, under her control, with deposits made after every healthcare encounter. After my colleagues and I demonstrated an open, free version of a “bank account” to companies in 2006, Google and Microsoft launched similar personally controlled health records — GoogleHealth and Microsoft Healthvault. Walmart and other employers offered our version, Indivo, as an employee benefit. Unfortunately, even these industry giants couldn’t shake loose data from the proprietary computer systems in doctors’ offices, or make the case to patients that curating the data was worth the effort.

But 12 years later, Apple’s product enters healthcare under different circumstances.  A lot more patient data is electronic after a $48 billion federal investment in promoting the adoption of information technology to providers. But those products, mostly older software and purchased at enormous expense, still don’t promote record sharing with doctors or patients.

Recognizing this unacceptable limitation and having received a generous grant comprising a tiny fraction of that federal investment, our team created SMART on FHIR. SMART is an interface to make doctors’ electronic health records work like iPhones do. Apps can be added or deleted easily. The major electronic health record brands have built this interface into their products.

Apple uses SMART to connect the Health app to hospitals and doctors offices. The good news for patients, doctors, and innovators is that Apple chose a standardized, open connection over a proprietary, closed one. This approach lets any other app, whether running on the web,  iPhone, or Android, use that very same interface to connect.

So Apple will compete on value and customer satisfaction, rather than on an exclusive lock on the data. Does Apple’s approach help Americans trying to stay well or manage their conditions? Yes. But only with follow-through by Apple, health systems, technology companies, patient groups, policy makers, and government regulators. The emerging ecosystem’s nuances must be appreciated.

First of all, the floodgates for patient information are at least a crack open and will be very hard to close. As patients gain access to their data, they will recognize it is incomplete and feel frustrated it’s not available everywhere. But, patients in need will drive demand for data access in their role as health consumers.

Secondly, the government is effectively using law and regulations to compel an open interface. By selecting SMART on FHIR, Apple and its healthcare launch partners mark the importance of standardization. A uniform approach is critical for scale. Imagine if every electrical product required a differently shaped 120V outlet. Understanding this, Google, Quest Diagnostics, Eli Lily, Optum, and many other companies are using the same interface to plug into healthcare.

Thirdly, Apple’s first version of health records brings data onto the phone, but from there, like the portals many patients are already familiar with, the data are still “view-only.”  In 2009, I had the chance to meet with Apple’s rockstar Bud Tribble and talk about how the iPhone could serve healthcare. We concluded that crucial data–like the medication list–had to be as easy for iOS developers to use in their apps as contacts and location are now.  I would not be at all surprised if this is the next step in Apple’s journey–making the health records available to iPhone app developers. Here too is an opportunity to chose open interfaces, and to allow patients to export the data to another device.

Lastly, competition in healthcare IT is hot. Amazon, Google, Apple and Facebook all have healthcare divisions.  Apple’s extraordinary hardware, including sensors in the phone and watch, will monitor patients at home.  Google’s artificial intelligence will lead doctors and patients to diagnoses and decisions.  Amazon is rumored to be eying pharmacy management. Facebook has sifted through posts to detect and possibly intervene when users may be suicidal.

There are so many opportunities to compete. Locking up a patient’s data should never be one of them.

Expert Advice For The Corporate Titans Taking On Health Care

Expert Advice For The Corporate Titans Taking On Health Care

An announcement Tuesday by three of the nation’s corporate titans — Amazon, Berkshire Hathaway and JPMorgan Chase & Co. — that they are joining forces to address the high costs of employee health care has stirred the health policy pot. It immediately sent shock waves through the health sector of the stock market and reinvigorated talk about health care technology, value and quality.

Though details regarding the undertaking are thin, the companies said in a release that their partnership’s intent is to improve employee satisfaction and hold down costs by bringing “their scale and complementary expertise to this long-term effort.”

They plan to create an independent company, “free from profit-making incentives and constraints,” to focus on “technology solutions.”

Berkshire Hathaway CEO Warren Buffett described health care costs as “a hungry tapeworm on the American economy,” and Amazon founder and CEO Jeff Bezos said the partnership was “open-eyed about the degree of difficulty” ahead. Jamie Dimon, chairman and CEO of JPMorgan, said the results could benefit the employees of these companies and possibly all Americans

But what does all of this mean and how can it be successful when so many other initiatives have fallen short? KHN asked a variety of health policy experts their thoughts on this venture, and what advice they would offer these CEOs as they go forward. Some of the advice has been edited for clarity and length.


Tom Miller, resident fellow, American Enterprise Institute (Courtesy of Tom Miller)

Tom Miller, resident fellow, American Enterprise Institute:

“It’s great that someone theoretically with resources would try to build a better mousetrap. But it’s been difficult to do, and part of it is regulatory and competitive barriers are well-constructed in the health care sphere, which tend to make it less receptive or subject to competitive pressures.

“I welcome any new capital trying to disrupt health care. … The incumbents are comfortable and could use disruption. If Amazon has an idea, and is willing to put some money behind it, that’s wonderful. What they are willing to do other than fly low-cost providers for home visits in drones — I don’t know. They’d probably have to miniaturize them, wouldn’t they?”


Stan Dorn, senior fellow, Families USA (Courtesy of Stan Dorn)

Stan Dorn, senior fellow, Families USA:

“Number one, look at prices. America doesn’t use more health care than European countries, but we pay a lot more and that’s because of prices more than anything else. Look at hospital prices and prescription drug prices. I would also say, look to eliminate middlemen operating in darkness. I’m thinking in particular of pharmacy benefit managers. Often, the supply chain is hidden and complex and every step along the way the middlemen are taking their share, and it winds up costing a huge amount of money.”


Bob Kocher, partner, Venrock (Courtesy of Bob Kocher)

Bob Kocher, partner, Venrock:

“It has been said that health care is complicated. One thing that is not complicated is that the way to save money is to focus on the sickest patients. And that’s the only thing that has proven to work in great primary care. I hope Amazon realizes this early and does not think that [its smart digital assistant] Alexa and apps are going to make us healthier and save any money.

“It would sure be nice if they invest in a ‘post-CPT-ICD-10-and-many-bills-per-visit’ world where we know prices, can easily know what is known about quality and experience, and have same-day service.”


Tracy Watts, senior partner, Mercer (Courtesy of Tracy Watts)

Tracy Watts, senior partner, Mercer:

“Everyone thinks millennials want to do everything on their phones. But that’s not necessarily the case.

“[There was a recent] survey about this — specifically, millennials are the most interested in new health care offerings, but it wasn’t as much high-tech as it is convenience they are interested in — same-day appointments with a family doctor, guaranteed appointments with specialists, home visits, a wider array of services available at retail clinics. That was kind of an ‘aha’ — this kind of convenience and high-touch experience is what they’re looking for. And when you think of ‘health care of the future,’ that’s not what comes to mind.”


John Rother, president and CEO, National Coalition on Health Care (Courtesy of John Rother)

John Rother, president and CEO, National Coalition on Health Care:

“Health care is complex and expensive, so the aim should always be simplicity and affordability. Three keys to success: manage chronic conditions recognizing the life context of the patient, emphasize primary care-based medical homes and aggressively negotiate prescription drug costs.”


Suzanne Delbanco, executive director, Catalyst for Payment Reform (Courtesy of Suzanne Delbanco)

Suzanne Delbanco, executive director, Catalyst for Payment Reform:

“The biggest driver of health care costs is prices. Those are being driven up by health care providers who have consolidated and will continue to consolidate and amass more market power.

“It sounds like they [the companies] are limiting the use of health plans, but if they’re going to get into that business, they’re going to come up with the same challenges health plans face. What would be really innovative would be to build some provider systems from the ground up where they can truly get a handle on the actual costs and eliminate the market power that drives the prices up, and they can have control over their prices.”


Brian Marcotte, president and CEO, National Business Group on Health (Courtesy of Brian Marcotte)

Brian Marcotte, president and CEO, National Business Group on Health:

“They recognize this is [a] long-term play to get involved in this. I’d have to say, this industry is ripe for disruption.

“I think we know technology will continue to play an increasing role in how consumers access and receive health care. We’ve also learned most consumers do not touch the health care delivery system with enough frequency to ever be a sophisticated consumer. What’s intriguing about this partnership is Amazon for many consumers has become part of their day-to-day world, part of their routine. It’s intriguing to consider the possibilities of integrating health care into consumer routine.

“And I think that therein lies the opportunity. Employers offer a lot of resources to their employees to help them maximize their experience, and their No. 1 challenge is engagement.”


Joseph Antos, health economist, American Enterprise Institute (Courtesy of Joseph Antos)

Joseph Antos, health economist, American Enterprise Institute:

“My first suggestion is to look at what other employers have done (some unsuccessfully) and consider how to adapt those ideas for the three companies and more broadly. Change incentives for providers. Change incentives for consumers. Work on ways to reduce the effects of market consolidation. The bottom line: Don’t keep doing what we are doing now. I don’t see that these three companies have enough presence in health markets to pull this off anytime soon, but perhaps this should be viewed as the private-sector version of the Affordable Care Act’s Innovation Center— except, this time, there may be some new ideas to test.”


Ceci Connolly, president and CEO, Alliance of Community Health Plans (Courtesy of Ceci Connolly)

Ceci Connolly, president and CEO, Alliance of Community Health Plans:

“We know that 5 percent of any population consumes 50 percent of the health care dollar. I would encourage this group to focus on how to better serve those individuals who need help managing multiple chronic conditions.”


David Lansky, CEO, Pacific Business Group on Health (Courtesy of David Lansky)

David Lansky, CEO, Pacific Business Group on Health:

“The incumbent providers of services to our members are not doing as much as we need done for affordability and quality. So, we are pleased to see them go down this path. We don’t know what piece of the puzzle they will tackle.

“We know well-intended efforts over the years haven’t added up to material impact on cost and quality. I would suspect they are looking at doing something broader, more disruptive than initiatives we have tried before.

“I think across the board they have the opportunity to set high standards for the health system in whatever platform they use. These companies have a history of raising the bar. Potentially, it could be a help to all of us.”

Amazon, JPMorgan and Berkshire Hathaway launch new healthcare company: 6 things to know

https://www.beckershospitalreview.com/finance/amazon-jpmorgan-and-berkshire-hathaway-to-launch-healthcare-company-6-things-to-know.html

Amazon, JPMorgan and Berkshire Hathaway are starting a healthcare company, aiming to lower costs

 

Amazon, Berkshire Hathaway and JPMorgan Chase & Co. are launching a new company aimed at cutting healthcare costs for their U.S. employees.

Here are six things to know about the partnership.

1. In addition to reducing healthcare costs, the companies are aiming to improve employee satisfaction through the new venture. Amazon, Berkshire Hathaway and JPMorgan are hoping the sheer size of each company and their complementary areas of expertise will help them tackle these issues.

2. “Our people want transparency, knowledge and control when it comes to managing their healthcare,” said Jamie Dimon, chairman and CEO of JPMorgan. “The three of our companies have extraordinary resources, and our goal is to create solutions that benefit our U.S. employees, their families and, potentially, all Americans.”

3. The companies said the project, which is in the early planning stage, will initially focus on technology solutions.

4. “The healthcare system is complex, and we enter into this challenge open-eyed about the degree of difficulty,” said Jeff Bezos, Amazon founder and CEO. “Hard as it might be, reducing healthcare’s burden on the economy while improving outcomes for employees and their families would be worth the effort. Success is going to require talented experts, a beginner’s mind, and a long-term orientation.”

5. The new venture will be jointly spearheaded by Todd Combs, an investment officer of Berkshire Hathaway; Marvelle Sullivan Berchtold, a managing director of JPMorgan Chase; and Beth Galetti, a senior vice president at Amazon.

6. “The ballooning costs of healthcare act as a hungry tapeworm on the American economy,” said Berkshire Hathaway Chairman and CEO Warren Buffett. “Our group does not come to this problem with answers. But we also do not accept it as inevitable. Rather, we share the belief that putting our collective resources behind the country’s best talent can, in time, check the rise in health costs while concurrently enhancing patient satisfaction and outcomes.”

http://www.latimes.com/business/la-fi-amazon-health-care-20180130-story.html?lipi=urn%3Ali%3Apage%3Ad_flagship3_feed%3BRZTkPL5nRHWNg6UD3hefBQ%3D%3D

 

KKR Closes $1.45 Billion Health Care Strategic Growth Fund

http://media.kkr.com/media/media_releasedetail.cfm?ReleaseID=1050109

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Aims to Back Innovative Growth Companies

KKR, a leading global investment firm, today announced the final closing of KKR Health Care Strategic Growth Fund (including parallel vehicles, “HCSG” or the “Fund”), a $1.45 billion fund dedicated to health care growth equity investment opportunities in the Americas. KKR will be investing more than $265 million of capital in the Fund alongside external investors through KKR’s balance sheet and employee commitments.

“The health care sector has demonstrated strong fundamentals throughout multiple cycles,” said Ali Satvat, KKR Member and Head of KKR’s Health Care Strategic Growth investing efforts. “Significant advances in medical innovation have yielded new products and services for patients, while consolidation and novel approaches to care delivery have the potential to improve clinical outcomes and reduce associated costs. These dynamics have created a significant market opportunity and an unmet need for strategic growth capital. We look forward to working with high-growth companies in the health care space for which KKR can be a unique partner in helping them achieve scale.”

The Fund received strong backing from a diverse group of new and existing global investors, including public pensions, insurance companies, family offices, and high net worth individual investors. “We are pleased that our enthusiasm for the attractive health care growth opportunities that the Fund enables is shared among a diversified group of global investors. This interest in the space, along with our strong team and record in health care, has helped us significantly exceed our initial target for the fundraise,” said Alisa Wood, Member and Head of KKR’s Private Market Products Group.

HCSG aims to generate strong returns for investors by investing in health care-related companies advancing innovative products or services and led by high-quality management teams. In particular, HCSG expects to make equity investments of up to $100 million and focuses on themes such as clinical / technological innovation, cost containment, and consolidation of therapeutic offerings or care providers.

“KKR’s health care investment team has been investing globally across the health care sector for more than 20 years, resulting in extensive industry experience, an established reputation within the space, and a strong track record of scaling health care-related companies,” said Jim Momtazee, KKR Member and Head of KKR’s Health Care investment team. “We believe that we can be a valuable partner to management teams running innovative, high-growth companies by leveraging this experience.”

KKR has deployed approximately $12 billion globally in the health care space across private markets. Beyond delivering financial capital, KKR helps companies grow by providing access to the firm’s operational expertise, global infrastructure, deep network, and resources from its more than 100 current portfolio companies worldwide. Over the last year, KKR has executed a number of transactions as part of the firm’s health care growth equity strategy, including Ebb Therapeutics (formerly known as Cerêve), Slayback Pharma, and Ajax Health.

 

Can the U.S. Repair Its Health Care While Keeping Its Innovation Edge?

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The United States health care system has many problems, but it also promotes more innovation than its counterparts in other nations. That’s why discussions of remaking American health care often raise concerns about threats to innovation.

But this fear is frequently misapplied and misunderstood.

First, let’s acknowledge that the United States is home to an outsize share of global innovation within the health care sector and more broadly. It has more clinical trials than any other country. It has the most Nobel laureatesin physiology or medicine. It has won more patentsAt least one publicationranks it No. 1 in overall scientific innovation.

Strong promotion of innovation in health care is one reason the United States got as far as it did in our recent bracket tournament on the best health system in the world. Though the United States lost to France, 3-2, in the semifinals, it picked up its two votes in part because of its influence on innovation, which can save lives in the United States and throughout the world.

Now we shouldn’t delude ourselves into thinking Americans are inherently more innovative than people in other countries. In fact, many American innovators are immigrants who may or may not be citizens. Many technological and procedural breakthroughs in medicine have occurred in other countries.

Rather, the nation’s innovation advantage arises from a first-class research university system, along with robust intellectual property laws and significant public and private investment in research and development.

Perhaps most important, this country offers a large market in which patients, organizations and government spend a lot on health and companies are able to profit greatly from health care innovation.

The United States health care market, through which over one-sixth of the economy flows, offers investors substantial opportunities. Rational investors will invest in an area if it is more profitable than the next best opportunity.

“The relationship between profits and innovation is clearest in the biopharmaceutical and medical device sectors,” said Craig Garthwaite, a health economist with Northwestern University’s Kellogg School of Management, and one of the judges in our tournament. “In these sectors, firms are able to patent innovations, and we have a good sense of how additional research funds lead to new products.”

High brand-name drug prices, along with generous drug coverage for much of the population, fuel an expectation that large biopharmaceutical research and development investments will pay off. Were American drug prices to fall, or coverage of prescription drugs to retrench, the drug market would shrink and some of those investments would not be made. That’s a potential innovation loss.

This is not mere theory, economists have shown. Daron Acemoglu and Joshua Linn found that as the potential market for a type of drug grows, so do the number of new drugs entering that market. Amy Finkelstein showedthat policies that made the market for vaccines more favorable in the late 1980s encouraged 2.5 times more new vaccine clinical trials per year for each affected disease. And Meg Blume-Kohout and Neeraj Sood found that Medicare’s introduction of a drug benefit in 2006 was associated with increases in preclinical testing and clinical trials for drug classes most likely affected by the policy.

Health care innovation can have direct benefits for health, well-being and longevity. A study led by a Harvard economist, David Cutler, showed that life expectancy grew by almost seven years in the second half of the 20th century at a cost of only about $20,000 per year of life gained. The vast majority of gains were because of innovations in the care for high-risk, premature infants and for cardiovascular disease. These technologies are expensive, but other innovation can be cost-reducing. For instance, in the mid-1970s, new dialysis equipment halved treatment time, saving labor costs.

Even with those undeniable improvements, there are questions about the nature of American innovation. Work by Mr. Garthwaite, along with David Dranove and Manuel Hermosilla, showed that although Medicare’s drug benefit spurred drug innovation, there was little evidence that it led to “breakthrough” treatments.

And although high prices do serve as incentive for innovation, other work by Mr. Garthwaite and colleagues suggests that under certain circumstances drug makers can charge more than the value of the innovation.

The high cost of health care, an enormous burden on American consumers, isn’t necessarily a unique feature of our mix of private health insurance and public programs. In principle, we could spend just as much, or more, under any other configuration of health care coverage, including a single-payer program. We spend a great deal right now through the Medicare program — often held out as a model for universal single-payer.

Despite the fact that traditional Medicare is an entirely public insurance program, there’s an enormous market for innovative types of care for older Americans. That’s because we are willing to spend a lot for it, not because of what kind of entity is doing the spending (government vs. private insurers).

In fact, some question whether the innovation incentive offered by the health care market is too strong. Spending less and skipping the marginal innovation is a rational choice. Spending differently to encourage different forms of innovation is another approach.

“We have a health care system with all sorts of perverse incentives, many of which do little good for patients,” said Dr. Ashish Jha, director of the Harvard Global Health Institute and the other expert panelist who favored the U.S. over France, along with Mr. Garthwaite. “If we could orient the system toward measuring and incentivizing meaningfully better health outcomes, we would have more innovations that are worth paying for.”

Naturally, the innovation rewarded by the American health care system doesn’t stay in the U.S. It’s enjoyed worldwide, even though other countries pay a lot less for it. So it’s also reasonable to debate whether it’s fair for the United States to be the world’s subsidizer of health care innovation. This is a different debate than whether and how the country’s health care system should be redesigned. We can stifle or stimulate innovation regardless of how we obtain insurance and deliver care.

“We have confused the issue of how we pay for care — market-based, Medicare for all, or something else — with how we spur innovation,” Dr. Jha said. “In doing so, we have made it harder to engage in the far more important debate: how we develop new tests and treatments for our neediest patients in ways that improve lives and don’t bankrupt our nation.”

ON HEALTH CARE PAUL ALLEN

https://www.forbes.com/100-greatest-business-minds/person/paul-allen

Paul Allen

We are about to enter the era of deep medicine, where we understand cell pathways and how to change them. I’m a two-time cancer survivor.

We are about to enter the era of deep medicine, where we understand cell pathways and how to change them. I’m a two-time cancer survivor. First I had Hodgkin’s, a young person’s cancer. And then non-Hodgkin’s lymphoma. Right now they just hit you with everything they’ve got, like carpet bombing. And then my mother passed away of Alzheimer’s. Those things are motivating experiences that make you want to understand things better and then make a difference. In maybe 20 or 30 years, we will use things like stem cells to change disease outcomes — your own immune system, designed by evolution, to attack sick cells and things like that. It seems inconceivable now — we have thousands of types of cells, so there are trillions of combinations — but health care would be much more personal. And the costs will potentially decline.

 

Diagnosing why innovation hasn’t stopped healthcare productivity declines

Diagnosing why innovation hasn’t stopped healthcare productivity declines

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Autonomous vehicles. Augmented reality. Artificial Intelligence.

The world is undergoing radical transformation via technological innovation. Healthcare is not immune to this trend and has lately unleashed its own wonders from CRISPR to 3D-printed prosthesis to sensor-enabled pills. We can truly transform lives in ways unimaginable even just 10 years ago.

In other ways, however, healthcare lags.

In transportation, Google’s first “driverless” Street View cars were on the road a scant few years after the DARPA Grand Challenges of the mid-2000s that paved the way for them, and Uber become a verb in the same amount of time it takes to implement a current EHR system. Furthermore, Amazon’s chatty Alexa now interacts with you in your home, having arrived just a short time after Siri became the personal assistant in your pocket.

Healthcare innovation has been incapable of gaining similar traction even with profound technological advances.

There is an unmentionable dark side of healthcare innovation.

Advances in productivity via utilization of new tools and technologies has been anemic. Healthcare is struggling to keep pace with other industries. In fact, in a recent McKinsey study, healthcare is one of only two industries (construction is the other) that has shown a productivity decline. Read that again: Despite IT spending growth increasing by over 5 percent per year over the last 10 years, we’ve actually seen the healthcare labor pool and service environment become less efficient!