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The article makes the point that the companies have complementary business competencies that could help them deliver a better healthcare experience (tech, logis

The article makes the point that the companies have complementary business competencies that could help them deliver a better healthcare experience (tech, logistics and customer service at amazon; reinsurance at berkshire; capital at JPM), but there is another advantage to these three companies working together: scale. amazon and berkshire are in the top 10 employers, and JPM is in the top 25. while most of the talk around improving healthcare cost / quality in the US centers around technology, value based care, etc, the real economics, and company's strategies, are largely driven by scale. this collaboration is a way to immediately get a strong negotiating position in any discussion and to provide a sizable test bed for various initiatives

rezashirazian 9y ago
If these companies get together and create a not for profit, how can for-profit providers even begin to negotiate with them. Also given the scale of these companies, wouldn't this raise healthcare costs for all others who don't work for one of them?
- gamblor956 9y ago
  Not necessarily. The largest driver of healthcare costs in the US is pharma profits. This venture, combined with the CVS/Aetna merger and the common drug factory venture, should place substantial downward pressure on pharmaceuticals to lower their prices or lose hundreds of millions in business...forever.
  - aaavl2821 9y ago
    The largest driver of cost in the US healthcare system is actually hospital care (30% of spend) while drug costs account for ~10% Not to say that drug prices aren't too high but they are just one piece of the puzzle
    - tdfx 9y ago
      Where could one find more sources for this kind of information?
      - aaavl2821 9y ago
        page 33 of this (CDC report) shows breakdown of spend by category: https://www.cdc.gov/nchs/data/hus/hus16.pdf#093 https://www.cdc.gov/nchs/data/hus/hus16.pdf#093 here are the CMS stats for 2016: https://www.cms.gov/research-statistics-data-and-systems/statistics-trends-and-reports/nationalhealthexpenddata/nhe-fact-sheet.html https://www.cms.gov/research-statistics-data-and-systems/sta...
- aaavl2821 9y ago
  Many not for profit providers in the US are actually quite profitable, and insurance companies, even for profit ones, have regulations regarding their profit taking (they must pay out like 85% of premiums they receive to cover medical expenses). So while not having a profit mandate can certainly help Amazon / brk/ JPM, scale and negotiating leverage are probably bigger drivers Interesting point re increasing costs for other companies, seems like it could certainly happen and maybe even lead to an arms race of employer consolidation. This phenomenon has happened in the hospital-insurance area, where a big hospital will buy up smaller providers and negotiate higher rates from insurers. The insurers then either have to consolidate and grow themselves or decrease rates to smaller providers, thus incentivizing smaller providers to join the big ones. This is a vicious cycle and I believe one of the main reasons for higher cost healthcare in the US. that said, healthcare is very local, so not sure if this new effort will impact local payer provider dynamics as much as it will increase more national scale issues like PBM and purchasing
  - cosmie 9y ago
    The cycle you mentioned is certainly a vicious one. But you missed another: their cap on profit is percentage based. This disincentivizes the insurer from truly attempting to contain costs, because while the percentage of income they can take as profit is capped, the absolute value is not. This leads to underinvestment in attempting to contain costs except to the level that they can retain as overhead and a cycle of ever increasing premiums ensue. It's also a reason for insurers to vertically integrate and getting their hands in the PBM business and offering telemedicine services and whatnot. Doing so allows the insurance arm to "pay out" to non-insurance subsidiaries, where they can both count that as a medical cost from the insurance arm yet still capturing profit from the non-insurance arm. In which case, it's beneficial to have inefficient contracts that give the non-insurance subsidiary a lot of leeway to run efficiently and generate solid profits.
    - aaavl2821 9y ago
      That's interesting, hadn't heard that before. The combination of Amazon et als buying power could potentially drive out some of that inefficiency as they negotiate lower premiums and payers lower prices by cutting some of the "fluff"
- gowld 9y ago
  "Not-for-profit" simply means than profits pass through to management employees (who would otherwise be owners if it were for-profit) and supporting members (like the NFL). It says very little about overall revenue-vs-costs
adrianmonk 9y ago
The article actually touched on scale when it talked about risk pooling. Its argument was that the three together are not big enough to have the same kinds of economies of scale as big health insurers, but I'm not sure I think it'll be a problem like they suggest. If the 3 are going to do their own insurance, all that has to happen is that the gains of cutting out a for-profit middleman need to exceed the losses of reduced economies of scale (compared to the insurance giants). Based on some quick Google searches (queries like "amazon number of employees"), it seems like the 3 together have a total of over 1 million employees. That seems like a large enough risk pool to me.
- aaavl2821 9y ago
  That is true, but I was referring more to scale as relates to negotiating leverage around PBMs or negotiating with payers The negotiating leverage piece is a more acheivable near term benefit. Creating their own insurance company would be complicated and actually maybe not the best idea. There are tons of regulations that would hinder this, but also the local nature of healthcare markets dilutes the power of their scale if the try to start an insurance company Amazon, Berkshire and JPM have employees scattered all across the country. However, they'd likely not have greater leverage than a given payer or provider in any specific locality as they wouldn't be a major employer in most areas. If they want to own physicians, in order to attract more physicians than the most locally powerful provider, they'd have to pay above market rates and would not have a large enough patient pool in most areas to justify this. In order to create a network as a payer, they'd need to spend a lot of money getting providers onboard but won't have a local network as large as that of leading payers, so they won't be able to reimburse at competitive rates. So arguably the biggest challenge to the uber aggregator model laid out in the article is that they have lots of national power but dilute local power in most markets, and since healthcare delivery is local, they can't win Edit: conciseness
- dv_dt 9y ago
  The odd disconnect with the pooling notes in the article is that it seems like all the other insurers seem to delight in creating mini single business pools even though the mega insurers themselves have plenty of customers to create single large pools (and win a nice administrative simplification). None of the large insurers also seem effective in price controlling via pooling drug purchases of their customers either - so it seems curious if this combination of businesses will be able to succeed. Good luck to Amazon and co, I hope they succeed at this venture.
pinot 9y ago
Isn't this basically how Kaiser got started?
- dredmorbius 9y ago
  https://news.ycombinator.com/item?id=16281893 https://news.ycombinator.com/item?id=16281893

rezashirazian 9y ago

If these companies get together and create a not for profit, how can for-profit providers even begin to negotiate with them. Also given the scale of these companies, wouldn't this raise healthcare costs for all others who don't work for one of them?

gamblor956 9y ago
Not necessarily. The largest driver of healthcare costs in the US is pharma profits. This venture, combined with the CVS/Aetna merger and the common drug factory venture, should place substantial downward pressure on pharmaceuticals to lower their prices or lose hundreds of millions in business...forever.
- aaavl2821 9y ago
  The largest driver of cost in the US healthcare system is actually hospital care (30% of spend) while drug costs account for ~10% Not to say that drug prices aren't too high but they are just one piece of the puzzle
  - tdfx 9y ago
    Where could one find more sources for this kind of information?
    - aaavl2821 9y ago
      page 33 of this (CDC report) shows breakdown of spend by category: https://www.cdc.gov/nchs/data/hus/hus16.pdf#093 https://www.cdc.gov/nchs/data/hus/hus16.pdf#093 here are the CMS stats for 2016: https://www.cms.gov/research-statistics-data-and-systems/statistics-trends-and-reports/nationalhealthexpenddata/nhe-fact-sheet.html https://www.cms.gov/research-statistics-data-and-systems/sta...
aaavl2821 9y ago
Many not for profit providers in the US are actually quite profitable, and insurance companies, even for profit ones, have regulations regarding their profit taking (they must pay out like 85% of premiums they receive to cover medical expenses). So while not having a profit mandate can certainly help Amazon / brk/ JPM, scale and negotiating leverage are probably bigger drivers Interesting point re increasing costs for other companies, seems like it could certainly happen and maybe even lead to an arms race of employer consolidation. This phenomenon has happened in the hospital-insurance area, where a big hospital will buy up smaller providers and negotiate higher rates from insurers. The insurers then either have to consolidate and grow themselves or decrease rates to smaller providers, thus incentivizing smaller providers to join the big ones. This is a vicious cycle and I believe one of the main reasons for higher cost healthcare in the US. that said, healthcare is very local, so not sure if this new effort will impact local payer provider dynamics as much as it will increase more national scale issues like PBM and purchasing
- cosmie 9y ago
  The cycle you mentioned is certainly a vicious one. But you missed another: their cap on profit is percentage based. This disincentivizes the insurer from truly attempting to contain costs, because while the percentage of income they can take as profit is capped, the absolute value is not. This leads to underinvestment in attempting to contain costs except to the level that they can retain as overhead and a cycle of ever increasing premiums ensue. It's also a reason for insurers to vertically integrate and getting their hands in the PBM business and offering telemedicine services and whatnot. Doing so allows the insurance arm to "pay out" to non-insurance subsidiaries, where they can both count that as a medical cost from the insurance arm yet still capturing profit from the non-insurance arm. In which case, it's beneficial to have inefficient contracts that give the non-insurance subsidiary a lot of leeway to run efficiently and generate solid profits.
  - aaavl2821 9y ago
    That's interesting, hadn't heard that before. The combination of Amazon et als buying power could potentially drive out some of that inefficiency as they negotiate lower premiums and payers lower prices by cutting some of the "fluff"
gowld 9y ago
"Not-for-profit" simply means than profits pass through to management employees (who would otherwise be owners if it were for-profit) and supporting members (like the NFL). It says very little about overall revenue-vs-costs

adrianmonk 9y ago

The article actually touched on scale when it talked about risk pooling. Its argument was that the three together are not big enough to have the same kinds of economies of scale as big health insurers, but I'm not sure I think it'll be a problem like they suggest. If the 3 are going to do their own insurance, all that has to happen is that the gains of cutting out a for-profit middleman need to exceed the losses of reduced economies of scale (compared to the insurance giants). Based on some quick Google searches (queries like "amazon number of employees"), it seems like the 3 together have a total of over 1 million employees. That seems like a large enough risk pool to me.

aaavl2821 9y ago
That is true, but I was referring more to scale as relates to negotiating leverage around PBMs or negotiating with payers The negotiating leverage piece is a more acheivable near term benefit. Creating their own insurance company would be complicated and actually maybe not the best idea. There are tons of regulations that would hinder this, but also the local nature of healthcare markets dilutes the power of their scale if the try to start an insurance company Amazon, Berkshire and JPM have employees scattered all across the country. However, they'd likely not have greater leverage than a given payer or provider in any specific locality as they wouldn't be a major employer in most areas. If they want to own physicians, in order to attract more physicians than the most locally powerful provider, they'd have to pay above market rates and would not have a large enough patient pool in most areas to justify this. In order to create a network as a payer, they'd need to spend a lot of money getting providers onboard but won't have a local network as large as that of leading payers, so they won't be able to reimburse at competitive rates. So arguably the biggest challenge to the uber aggregator model laid out in the article is that they have lots of national power but dilute local power in most markets, and since healthcare delivery is local, they can't win Edit: conciseness
dv_dt 9y ago
The odd disconnect with the pooling notes in the article is that it seems like all the other insurers seem to delight in creating mini single business pools even though the mega insurers themselves have plenty of customers to create single large pools (and win a nice administrative simplification). None of the large insurers also seem effective in price controlling via pooling drug purchases of their customers either - so it seems curious if this combination of businesses will be able to succeed. Good luck to Amazon and co, I hope they succeed at this venture.

pinot 9y ago

Isn't this basically how Kaiser got started?

dredmorbius 9y ago
https://news.ycombinator.com/item?id=16281893 https://news.ycombinator.com/item?id=16281893