July 2, 2018

  • Answers

    It's been a while since I've answered a question on a blog, but Adam Haverson asked me the following:

    Hey man - it's been a long time! We weren't really close at school but you are one of the few people I know who posts thoughtfully on FB & I've enjoyed following you & your conversations with friends. Been meaning to ask you - what is your take on the Berkshire/Morgan/Amazon healthcare initiative? I saw they just appointed a CEO so it must be moving ahead.

    Atul Gawande is certainly a respected figure in medical literati; I'm a little surprised by the pick, but there are few forward thinking medical doctors that can do things that the medical community may strongly disagree with - which may be a good reason to pick him. Other major medical systems like Geisinger, Cleveland Clinic, Mayo - that are physician led - were probably mooted, but they picked Gawande.

    It's impossible to know precisely what Amazon/JPM/Berkshire will do - and I suspect they can'd know precisely either. Startups by nature change as they develop. That said, given the players: Logistics, finance, investment/insurance - they pull together very interesting domains for one of the thorniest problems in modern technology and business... how do you create a system that has efficient healthcare delivery?

    While this is completely out of bounds for a full discussion here (where is a good forum for this?)
    Healthcare in a nutshell

    Potentially limitless spending
    Huge range of cost/impact curves
    Opaque and sometimes quixotic price signalling
    Incomplete metrics at all levels of care.
    Limited vertical integration
    Most systems have payor-provider(multiple tiers)-admin tiers - patient (who may not be the decision maker).

    Presently, Geisinger and Kaiser are the most well known vertically integrated healthcare systems in the US. By having insurance and provision, they have the potential to better understand where the money goes, and they have an incentive to spend less to get equivalent results - other systems have no such incentives. But, they lack complete data.

    By having a complete vertical, including deep, big data analytics that takes into account logistical problems, the potential to have a much more "aware" system of care arises.

    That's my bet on where the collaboration is trying to lead. Provide the insurance, the care, track the delivery, outcomes and feed it back into not only your actuarial assessment for premiums, but also the care delivery - the how, when and how much. This allows internal pricing signaling. Why pay for things that don't work?

    The only problem with all of these lean-ish models (and our present system, TBH) is that it's inefficient at dealing with new innovative and effective things... That's something that I wish would be addressed more adroitly.

Comments (2)

  • Thanks for the thoughts. It seems like you have an objective view on the US medical industry, which shouldn't surprise me at all other than that it is an unusual from insiders. Couple of follow-up questions: 1) if Geisinger and Kaiser have the most integrated systems today, do you so see a fundamental difference in the way they do business, or is it just incremental efficiencies? 2) From a classical / economics perspective there is a huge opportunity for offshoring. Do you think part of a disruptive strategy will be out-of-country surgery & tele-medicine? I have met US and UK educated docs in China that go there for the relative simplicity of regulations, liability & insurance.

    • Hey Adam,

      If there's a way they do business differently - it's in that they have a much more complete view of the healthcare they deliver, as they both collect money from patients, and pay the doctors - they have a much more complete data set, and Kaiser thus is much more incentivized to do preventive medicine - and it shows. They also don't have the incentive to build new services just because they are new and expensive. Pure provider hospitals take the risk that the new tech can drive business, and have less incentive to evaluate cost to the system vs. benefit, as they just have to analyze projected p and l from the item and use. So it's actually at design a huge difference in models of investment and spend.

      Off-shoring happens. There are downsides. You have to trust the off shore institution to maintain quality - and this just ends up being a trust question. It's normally fine... but not always. But the same can be said of domestic services... absolutely truly.

      Out of country outsourced docs already occur - both telemedicine and radiology. The only barrier is US licensing, and the arbitrage is huge... so it's an actively occuring trend. Depending on the training of the off-shore group, you can have a good deal, bad deal or neutral deal. Normally, most providers use off shoring to deal with labor shortages, of which it is actually quite common. Night time, etc. Rural area...

      In the end, the regulatory environment is pretty tough in most developed countries, which prevents full on med-market labour/SME fluidity.

      And - worldwide, there is a doctor shortage - which is a topic unto itself. There is a brain drain of physicians away from India to the US of collosal numbers... but it leaves an obscenely low doctor to patient ratio in India, which already "underserved".

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