JPMorgan Chase CEO Jamie Dimon. Photo by Stefen Chow, courtesy Fortune Global Forum/Fortune Live Media.
March has arrived, and with it, the annual madness of trying to pick in advance who will win a variety of fiercely contested match-ups.
But even “bracketology” wonks may end up stumped with this one: three of the most successful businessmen in America versus the shockingly expensive U.S. health care system.
Amazon.com Inc., Berkshire Hathaway Inc. and JPMorgan Chase & Co. have announced that they will work together to create an independent company “free from profit-making incentives and constraints” designed to provide less complicated and more transparent health care at reasonable cost. For now, the company will focus on providing this care to the employees of the three parent companies, though JPMorgan Chase CEO Jamie Dimon suggested in a statement that potential solutions may eventually extend to all Americans.
Dimon, along with Amazon’s Jeff Bezos and Berkshire Hathaway’s Warren Buffett, successfully made an attention-grabbing opening move. But I suspect this endeavor is more likely to prove an exercise in hubris than a path to practical reform.
In fact, “practical” hardly seems to apply when the CEOs of three major public companies say they intend to create a joint enterprise without the bother of profit-making incentives. One might wonder what they think their shareholders are paying them to do, if not pay attention to those incentives and constraints.
Let us grant, for the moment, that Bezos, Buffett and Dimon took on this task believing that, by doing good, they will also do well for their respective companies. Even so, their plan – to the extent we know it – seems like one of those ideas that usually sound better when sketched on a napkin over dinner or drinks than when the crumpled-up notes are re-examined in the cold light of day.
So far, the companies have said that they plan to hire a CEO and that the new company will start by partnering with existing organizations in some unspecified manner. The organization will focus on technology solutions, and its long-term management team, headquarters and operational details are all yet to be announced. For now, the project is headed by three individuals, one from each parent company.
There are plenty of big businesses that have tried to curb the growth of health care costs. In fact, given the level of those costs – an estimated 18 percent of U.S. gross domestic product in 2017 – I would assume that practically every big business has made such an effort. They have had modest success at best. This is not because they are run by people less smart than Bezos, Buffett and Dimon. The upper limit on successful cost-cutting is built into the reality that the main drivers of health care costs are a function of government policy that the private sector can’t do much about.
There are quite a few such drivers. For instance, laws defend high prescription drug prices from competition in the form of imported foreign drugs, or even American-made medicines that have been sold abroad at much lower prices. Consider the tug-of-war over expensive EpiPens, which are available internationally for much less than Americans pay, but which cannot return to the U.S. because of “re-importation” rules. While President Trump favored allowing re-importation on the campaign trail and touched upon that pledge in his first State of the Union address, there has been no recent movement on this issue.
Patent laws also allow pharmaceutical companies to block emerging competition from generic alternatives when their original patents expire. This often involves enacting minor formulation changes or creating economic disincentives for competitors to enter the market. Occasionally, even an expired patent doesn’t stand in the way of maintaining high prices, if competitors decide the drug is not worth competing over. For an example, just consider that the patent for Daraprim, the drug whose price increase made Turing Pharmaceuticals CEO Martin Shkreli one of the most despised public figures in the country, expired decades before the drug’s pricing made news. The argument for sky-high prices on brand-name drugs is typically that it funds research and development. Even to the extent this is true, however, it makes no sense that Americans are footing the lion’s share of the cost of developing medicines that benefit the whole world.
Drug prices aren’t the only culprit, of course. The high cost and limited availability of medical training keeps the supply of medical professionals well below the demand. At the same time, our system burdens new doctors with excessive debt. Research published in the Journal of the American Medical Association found that while the number of medical graduates without debt is rising, the average debt per student in 2016 was still $179,000. This system discourages would-be physicians from pursuing the career and funnels medical students toward specialties based on potential income, even if their interests might otherwise lead elsewhere.
The problem of too-few doctors is exacerbated by limitations on the scope of practice that restricts nurse practitioners and other nonphysicians from handling routine exams, illnesses and procedures, despite the fact that they could doubtless do so safely. Requiring these medical professionals to work under doctor supervision for such everyday matters drives up the cost of care and of physicians’ insurance, and also contributes to doctors’ overfull schedules.
Liability laws and insurance mandates encourage overtreatment, excessive testing and procedures, and over-coding to generate maximum reimbursements. While professionals debate to what level overtreatment alone is driving health care costs, it is clearly a factor. Our insurance system also largely insulates patients from the costs of many of their treatments. Even individuals who want to comparison shop or make cost-effective decisions about their care often cannot, because pricing remains opaque in most circumstances.
Bezos, Buffett and Dimon can lobby for the changes in these laws and regulations that they think would help, of course. But their voices will blend into the ongoing debate over health care legislation that has been center stage in this country for the past decade, and a high priority for much longer than that. In the meantime, “technology solutions” can only go so far in the face of these systemic problems.
Despite my skepticism, I am certainly not rooting against these three. All of us will benefit if they can make American medical treatment more cost-effective. I hope they do it soon. I’d like them to save some time for ending world hunger.