Washington failed on health care so Bezos and Berkshire are jumping in

Jeff Bezos, Warren Buffett and Jamie Dimon have decided to reform health care, at least for their employees, but with the possibility that their solutions may improve health care more widely. The message is clear. Washington, you did not fix the problem. It’s the private sector’s turn now.

Amazon, Berkshire Hathaway and JPMorgan Chase & Co. announced that they will create a company that will seek technology solutions to promote better care at reasonable cost. As Warren Buffett said, they want to put an end to health costs acting as “a hungry tapeworm on the American economy.” That may be a start, but real reform cannot stop there.

{mosads}According to the press release, this new company will be “free from profit-making incentives and constraints,” a nice-sounding phrase that means the investment in this startup company may not pay off. But the profit-making incentives and constraints of the health system cannot and should not be ignored. Indeed, those incentives and constraints are major parts of the problem.

The three companies should also not take too much credit for recognizing that employers can play an important role in improving the health system. The new initiative is welcome, but not revolutionary. Large employers have been working on a variety of approaches tailored to their employees and locales to reduce cost growth and improve outcomes.

Some employers, including General Electric, Boeing, Lowe’s and Walmart, directly purchase for employees needing a knee replacement or a back surgery an all-inclusive bundle of services, including diagnostic tests, procedures, medical devices, drugs, and other services. That results in fewer unnecessary surgeries, better outcomes, and lower costs. The three CEOs did not lay out a specific plan of action. Here are a few suggestions that might broaden the scope of the new effort beyond technological solutions to thornier problems requiring more difficult interventions.

First, change incentives for providers. Move from fee-for-service payment, which promotes high volume not higher value, to fixed payments that cover the cost of patient care over a period of time. Provide bonuses for real performance, and implement this by developing performance indicators that actually measure performance. Align the interests of providers and consumers, rather than retaining the current system which promotes overuse of services that may have little or no value to the patient.

Second, change incentives for consumers. The best way to lower the cost of care for an individual is to prevent the onset of disease. That requires smart policies, not feel-good approaches that follow the latest trends despite evidence that they may not reduce cost or improve outcomes. Identify which preventive services actually work for which consumers, and promote those targeted uses. Financial incentives could help promote smarter use of health care by consumers, but only if those incentives are absolutely clear, and consumers and their physicians have the information needed to weigh the options.

Third, work on ways to reduce the effects of market consolidation. Antitrust clearly has not worked. It is time to create new approaches to delivering care that break the near-monopolies found in many urban areas. Promote smarter regulation to allow advance-practice nurses to work to the top of their license, and raise the top, while we’re at it. Even without regulatory or legislative changes, promote just-in-time care, workplace clinics, and other ways to reduce unnecessary hospitalization and increase convenience for workers, who may then be more willing to use services in a less conventional, more efficient way. Sustainably lower prices are more likely to result from changing the delivery system than by government fiat.

The bottom line is don’t keep doing what we are doing now. These three companies may not have enough presence in health markets to fundamentally reform health care. Their initiative 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.

Joseph Antos is the Wilson Taylor resident scholar in health care and retirement policy at the American Enterprise Institute. He previously served as assistant director for health and human resources at the Congressional Budget Office and has held senior positions at the Department of Health and Human Services and the Office of Management and Budget.