In health care, as in life, people devote a lot of time and attention to the way things should be. They’d be better off focusing on what actually could be.
As an example, 57% to 70% of American voters believe our nation “should” adopt a single-payer health care system like Medicare for all. Likewise, public health advocates insist that more of the nation’s $4 trillion health care budget “should” be spent on combating the social determinants of health: things like housing insecurity, low-wage jobs, and other socioeconomic stresses. Neither of these ideas will happen, nor will dozens of positive health care solutions that “should” happen.
When the things that should happen don’t, there’s always a reason. In health care, the biggest roadblock to change is what I call the conglomerate of monopolies, which includes hospitals, drug companies, private-equity-staked physicians, and commercial health insurers. These powerful entities exert monopolistic control over the delivery and financing of the country’s medical care. And they remain fiercely opposed to any change in health care that would limit their influence or income.
This article concludes my five-part series on medical monopolies with an explanation of why (a) “should” won’t happen in health care but (b) industrywide disruption will.
Why government won’t lead the way.
With the U.S. Senate split 51-49 and with virtually no chance of either party securing the 60 votes needed to avoid a filibuster, Congress will, at most, tinker with the medical system. That means no Medicare For All and no radical redistribution of health care funds.
Even if elected officials started down the path of major reform, health care’s incumbents would lobby, threaten to withhold campaign contributions (which have exceeded $700 million annually for the past three years), and swat down any legislative effort that might harm their interests.
In American politics, money talks. That won’t change soon, even if voters believe it should.
Private payers wield significant power and influence of their own. In fact, the Fortune 500 represents two-thirds of the U.S. GDP, generating more than $16 trillion in revenue. And they provide health insurance to more than half the American population.
With all that clout, you’d think business executives would demand more from health care’s conglomerate of monopolies. You might assume they’d want to push back against the prevailing “fee for service” payment model, replacing it with a form of reimbursement that rewards doctors and hospitals for the quality (not quantity) of care they provide. You’d think they would insist that employees get their care through technologically advanced, multispecialty medical groups, which deliver superior outcomes when compared to solo physician practices.
Instead, companies take a more passive position. In fact, employers are willing to shoulder 5% to 6% increases in insurance premiums each year (double their average rate of revenue growth) without putting up much or any resistance.
One reason they tolerate hefty rate hikes—rather than battling insurers, hospitals, and doctors— involves a surprising truth about insurance premiums. Business leaders have figured out how to transfer much of their added premium costs to employees in the form of high-deductible health plans. A high deductible plan forces the beneficiary to pay “first dollar” for their medical care, significantly reducing the premium cost the employer pays.
Businesses also realize that high deductibles will only financially burden employees who experience an unexpected, catastrophic illness or accident. Meaning, most workers won’t feel the sting in a typical year. As for employees with ongoing, expensive medical problems, employers typically don’t mind watching them walk out the door over high out-of-pocket costs. Their departures only reduce the company’s medical spend in future years.
Finally, businesses know that employee medical costs are tax deductible, which cushions the impact of premium increases. So, what starts as a 6% annual increase ends up costing employees 3%, the government 1%, and businesses only 2%. In today’s strong labor market, which boasts the lowest unemployment rate in 54 years, businesses are reluctant to demand changes from health care’s biggest players—regardless of whether they should.
If there were a job opening for “Leader of the American Healthcare Revolution,” the applicant pool would be shallow.
Elected officials would shy away, fearing the loss of campaign contributions. Businesses and top executives would pass on the opportunity, preferring to shift insurance costs to employees and the government. Patients would feel overwhelmed by the task and the power of the incumbents. Despite their frustrations with the current system, doctors, nurses, and hospitals would want to take small steps, fearful of the conglomerate of monopolies and the risks of disruptive change.
To revolutionize American medicine, a leader must possess three characteristics:
- Sufficient size and financial reserves to disrupt the entire industry (not just a small piece of it).
- Presence across the country to leverage economies of scale.
- Willingness to accept the risks of radical change in exchange for the potential to generate massive profits.
Whoever leads the way won’t make these investments because it “should happen.” They will take the chance because the upside is dramatically better than sitting on the sidelines.
Amazon, CVS, Walmart, and other retail giants are the only entities that fit the revolutionary criteria above. In health care’s game of monopoly, they’re the ones willing to take high-stakes risks and capable of disrupting the industry.
For years, these retailers have been acquiring the necessary game pieces (including pharmacy services, health-insurance capabilities, and innovative care-delivery organizations) to someday take over American health care.
CVS Health owns health insurer Aetna. It bought value-based care company Signify Health for $8 billion and national primary care provider OakStreet Health for $10.6 billion. Walmart recently entered into a 10-year partnership with the nation’s largest insurance company, UnitedHealth, gaining access to its 60,000 employed physicians. Walmart then acquired LHC, a massive home health provider. Finally, Amazon recently purchased primary-care provider One Medical for $3.9 billion and maintains close ties with nearly all of the country’s self-funded businesses.
Harvard business professor Clay Christensen noted that disruptive change almost always comes from outsiders. That’s because incumbents cling to overly expensive and inefficient systems. The same holds true in American health care.
The retail giants can see that health care is exorbitantly priced, uncoordinated, inconvenient, and technologically devoid. And they recognize the hundreds of billions of dollars of revenue they could earn by offering a consumer-focused, highly efficient alternative.
Initially, I believe the retail giants will take a two-pronged approach. They’ll (a) continue to promote fee-for-service medical services through their pharmacies and retail clinics (in-store and virtual) while (b) embracing every opportunity to grow their market share in Medicare Advantage, the capitated option for people over age 65.
And within Medicare Advantage, they’ll look for ways to leverage sophisticated IT systems and economies of scale, thus providing better coordinated, technologically supported care, and lower cost than what’s available now.
Rather than including all community doctors in their network, they’ll rely on their own clinicians, augmented by a limited cohort of the highest-performing medical groups in the area. And rather than including every hospital as an inpatient option, they’ll contract with highly respected centers of excellence for procedures like heart surgery, neurosurgery, total-joint replacement, and transplants, trading high volume for low prices.
Over time, they’ll reach out to self-funded businesses to offer proven, superior clinical outcomes, plus guaranteed, lower total costs. Then they’ll make a capitated model their preferred insurance plan for all companies and individuals. Along the way, they’ll apply consumer-driven medical technologies, including next generations of ChatGPT, to empower patients, provide continuous care for people with chronic diseases and ensure the medical care provided is safe and most efficacious.
Tommy Lasorda, the long-time manager of the Los Angeles Dodgers, once remarked, “There are three types of people. Those who watch what happens, those that make it happen, and those who wonder what just happened.”
Lasorda’s quip describes health care today. The incumbents are watching closely but failing to see the big picture as retailer acquire medical groups and home health capabilities. The retail giants are making big moves, assembling the pieces needed to transform American medicine as we think of it today completely. Finally, tens of thousands of clinicians and thousands of hospital administrators are either ignoring or underestimating the retail giants. And, when they get left behind, they’ll wonder: What just happened?
The conglomerate of monopolies rules medicine today. Amazon, CVS, and Walmart believe they should rule. And if I had to bet on who would win, I’d put my money on the retail giants.
Robert Pearl is a plastic surgeon and author of Uncaring: How the Culture of Medicine Kills Doctors and Patients. He can be reached on Twitter @RobertPearlMD.
