Though Buffett says the tapeworm won, entrepreneurs can change the game.
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Warren Buffett recently described the American healthcare system as a “tapeworm in the American economy.” Berkshire Hathaway, JPMorgan Chase and Amazon formed Haven to disrupt the healthcare industry — which is 17 percent of GDP — and, as Buffett put it, “the tapeworm won.”
One might assume that since three of the largest and most successful companies in the country couldn’t create a more efficient healthcare system, it can’t be done. The truth is that Haven made some key missteps, which now highlight the path for entrepreneurs who want to create a more affordable and accessible healthcare system.
Haven hired a CEO who was a brilliant physician and academic, but who had limited experience in how healthcare administration works. It built a team around him of 57 academics, clinicians and insurance veterans. It needed streetfighters.
At first, things looked good. There was a public fight over a noncompete with UnitedHealthcare. That gave the healthcare market hope that maybe if one of the industry giants was so concerned about its trade secrets, Haven would use the knowledge of how the system works to change it. That did not happen.
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Amazon, which seemingly dominates any industry it wants, was unable to break into the pharmacy business on its own terms because it could not get referrals or data from the major health plans, all of which own pharmacy benefit managers (PBMs). So Amazon agreed to a relationship that was patently undisruptive: a partnership with a PBM to create a mail-order pharmacy.
Amazon built its new pharmacy business on one of the most broken aspects of the healthcare industry, which was guaranteed to undermine Haven. This is only the most overt example of the Haven companies relying on the industry they hoped to change.
The healthcare industry is so big that all of the Fortune 50 have a stake in the current healthcare system beyond their employee benefits. JPMorgan Chase and other large banks sell profitable, growing healthcare companies that are benefiting from the broken system. Berkshire Hathaway has a longstanding reinsurance business that benefits from the prepayment of premiums to leverage its investment strategies.
Related: Healthcare is in Turmoil, But Technology Can Save Businesses Billions
What would Warren Buffett do?
Look no further than Warren Buffett’s own investment strategy for a roadmap to fixing the healthcare system. Buffett has never been the moonshot guy. He’s methodical. Loudly creating a venture to disrupt an entire industry isn’t really his style. Incremental improvement is.
The changes needed in healthcare are small and many. And like Buffett’s fortune, their cumulative effect can be massive. A much-needed update to the formulary and rebate system can lower drug costs. Technology can ensure that patients pay the lowest possible price at the pharmacy. Not just auditing for billing errors but preventing them could save billions of dollars.
Dozens of changes like these can return money to employers and individuals without changing the quality of care or health outcomes in any way. Buffett says Berkshire Hathaway did find inefficiencies and lowered its own healthcare costs some. Good for him — he was on the right track, but didn’t have the proper team or structure to keep going.
Haven certainly had the potential to upend the systems that prevent competition in the current environment, but it seems it simply wasn’t channeled properly. The giants had their chance. Now it’s up to startups and entrepreneurs to not waste this opportunity.