Why Haven Healthcare Failed

Haven, the venture to disrupt U.S. health care formed by Amazon, Berkshire Hathaway, and JPMorgan Chase, is disbanding less than three years after its launch.

When it was formed, the three companies had a lofty goal: to “provide U.S. employees and their families with simplified, high-quality, and transparent health care at a reasonable cost.” Atul Gawande, the famous author and surgeon, was hired as CEO, and Jack Stoddard, who served as general manager for digital health at Comcast, took the COO job. What transpired next was a slow drain of talent. Stoddard left only nine months after being hired, and Gawande departed a year later.

Despite the companies’ combined 1.2 million U.S. employees and incredible market power, it just didn’t happen. Why? There are three factors:

Insufficient market power. Despite their 1.2 million employees, Haven’s three constituent companies still didn’t have enough market power to wring lower prices from providers. The main reason is the consolidation of health systems that has occurred in the United States in the last 10 to 15 years. Unless an employer group has a big chunk of the local market (more than 50% of eligible employees), providers don’t budge on their prices. Since the employees of the three companies in Haven were scattered all over the country, they couldn’t dominate even one market.

Perverse incentives. We still live in a world where the larger portion of hospitals’ beds that are utilized, the more they get paid. Consequently, the U.S. health system is focused on treating sickness rather than preventing illness in the first place. Unless we replace volume-based, fee-for-service reimbursement with a capitation model that pays providers a fixed amount per member per month and is tied to health outcomes, hospital leaders will still have no incentive to keep people out of hospitals unless their health system also is a health insurer — a path a handful of organizations, including Kaiser Permanente and Intermountain, have taken.

Since insurers and providers make big profits in the existing dominant system, they have little reason to change and accept the risks of a fixed-price capitation system. Despite the efforts of the Centers for Medicare & Medicaid Services (CMS) to encourage health systems through accountable care organizations (ACOs) to take such risks for Medicare enrollees, not many have been willing, and most have retained their relatively safe fee-for-service arrangements with the government.

Poor timing. The Covid-19 pandemic has changed everyone’s focus. Providers have had to turn all energy to managing the crisis and have taken a huge financial hit due to the postponement or cancellation of elective and nonurgent procedures. Consequently, they are considering no new ideas until the crisis abates and even then, are unlikely to entertain taking on new risks. Indeed, the CEO of one large academic medical center told me: “We plan to jettison as many risk contracts as we can over the next two years.”

What can be done? As discussed in a previous article, I believe the incoming Biden administration should focus on expanding the Affordable Care Act (ACA) — specifically Medicare Advantage plans — to make affordable insurance coverage available to people under 65 years of age. With the creation of the so-called “public option,” individuals under 65 years could obtain insurance on their own, and employers could offer Medicare Advantage plans at government-established rates. Thirty-five percent of Medicare enrollees choose these plans today and are highly satisfied with them.

Employers could offer competitive Medicare Advantage plans to their employees either through a public option or a tailored private exchange. They would pay 20% of employee salary into a pool to participate — a cost that would be lower than the 25% to 35% of employee salaries that they now pay for commercial insurance. This coverage could also be offered as an automatic enrollment plan for the poor, and Medicaid enrollees would be offered the same competitive options. If large corporations want to self-insure, they would still be able to do so but at a substantially higher cost.

In this scenario, there is no mandate, only choice. It’s the one way to bring employers, insurers, providers, and the government to the table in a bipartisan fashion. It just might work — nothing else has.

John S. Toussaint M.D., is the founder and executive chairman of Catalysis, a nonprofit educational institute. He is a former CEO of a health care system and coaches teams on Toyota Production System principles.

Copyright 2018 Harvard Business School Publishing Corporation. Distributed by The New York Times Syndicate.