Gawande to target health care system middlemen

The health venture established by Amazon.com Inc., Berkshire Hathaway Inc. and JPMorgan Chase & Co. will take aim at intermediaries in the health-care system as a part of a broad effort to reduce wasteful spending, the venture’s newly named chief executive officer said.

The still-unnamed business will initially seek to develop ways to improve care for the more than 1 million individuals who get health insurance from the three firms. Over time, the venture will make those innovations available freely to other companies, meaning that if it’s successful, its effects could be felt more broadly among the more than 150 million people in the U.S. who get their health insurance through work.

“My job for them is to figure out ways that we’re going to drive better outcomes, better satisfaction with care and better cost efficiency with new models that can be incubated for all,” Atul Gawande, the Harvard surgeon and journalist who was named last week to run the initiative, said Saturday at an Aspen Institute event.

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Gawande, 52, starts July 9 at the Boston-based business, which is independent of the three firms that established it and not intended to generate profits. The companies have collectively said little about what the venture will do since announcing it in January, prompting broad speculation about its plans for upending health care.

Gawande said the venture will seek to target three kinds of waste in the health-care system: administrative costs, high prices, and improper health-care usage. He didn’t say which intermediaries the venture might target, or what its plans are.

Attacking costs

“One source of waste is our very high administrative costs,” he said during a conversation with journalist Judy Woodruff at the Spotlight Health event. “There are a lot of middlemen in the system, and there have to be solutions that simplify that, take some of the middlemen out of the system.”

When the venture was announced, investors sent shares of health insurers, pharmacy-benefits managers and distributors lower, worried that the initiative would pressure their profits. Gawande’s remarks at the event are the most detailed to date about his plans and may confirm some of those concerns.

The biggest U.S. pharmacy-benefits managers are CVS Health Corp., Express Scripts Holding Co. and UnitedHealth Group Inc.’s OptumRx unit. UnitedHealth is the biggest U.S. health insurer, and other large carriers include Cigna Corp., Aetna Inc. and Anthem Inc.

The health industry has been reconfiguring itself, too. CVS late last year announced a deal to acquire Aetna, and Cigna in March agreed to buy Express Scripts.

Gawande also said the venture has a long time horizon, echoing past remarks from Berkshire CEO Warren Buffett and JPMorgan CEO Jamie Dimon. He raised questions about the future role of employers in the U.S. health-care system, as workers increasingly move between jobs or work in many smaller roles that don’t provide insurance in the gig economy.

“Tying how you get your health to your place of employment is going to become less and less tenable as fewer and fewer people are getting coverage through their employment,” he said. Gawande supports government-guaranteed health insurance for all.

“Even though I’m going to work for a bunch of employers, employer-based care is broken,” Gawande said.

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