Should the rest of the world care about JP Morgan, Amazon and Berkshire Hathaway going it alone on healthcare?
America has the world’s stupidest healthcare system, but it also has some very clever people. So should the healthcare services sector outside the USA pay any attention to the news that three corporate giants have ganged together to build their own healthcare for employees?
We think not. JP Morgan has sought to lull fears that it is about to revolutionise the world by indicating that the trio plan group buying, rather than a revolution. Nor is this a new approach. Boeing, Walmart, GE and Lowe’s and McKesson have all already done so- here is a good HBR article on the subject. So could the trend come to Europe?
You only have to look at the medical loss ratio to see why big US companies have started going direct to healthcare systems. UnitedHealthcare paid out only 80.8% in the fourth quarter of 2017 – a figure Barclays analyst Joshua Raskin said was one of the best medical loss ratios he’d seen in years. But Aetna’s commercial arm managed a similar ratio of 79.4% in the first quarter of 2017.
So how does that compare to big, statutory, not-for-profit insurers in Europe? Erik Schut at the Erasmus School of Health Policy & Management says that the big Dutch statutory insurers pay out around 95%. He adds: “This is not enforced by a legal requirement, but is the result of effective price competition and societal/political pressure not to make “excess” profits.” We believe the figure is similar for statutory insurers in Germany. Elsewhere, we are seeing cut-price innovation coming from Swiss statutory insurers who have come up with a budget healthcare insurance alternative which is around 24% cheaper and has now enrolled two-thirds of the Swiss population. Attempts by big German hospital groups to go direct to large corporates went nowhere a few years ago. This is perhaps unsurprising given the efficiency of European insurers.
So the short answer is that, in Europe, we are unlikely to see such attempts. And if these are the sorts of margins that international insurers expect to achieve in Emerging Markets then we’d be amazed if they grow their businesses there successfully.
However, going direct may be possible in the the UK. There, Bupa saw its loss ratio falling from 77.8% in 2008 to 71% in 2015 with Axa down from 75.6% to 72.5%. If UK private hospitals really think they are cost efficient (and Bupa says they are twice as expensive as Spain) then why don’t they start going direct to large corporates? And in eastern Europe corporates who want to give their employees something faster and possibly better than underfunded public health have been going direct to the likes of Medicover, LuxMed and in Finland to Tereystalo and Mehilainen for years. Medicover’s organic growth rate in 2017, an almost unfeasibly high 14.5% shows that this is a model that works. We see the same patterns already in South East Asia.
Of course, it is Amazon’s inclusion in the big trio which really freaked the market. Could it find a way to disintermediate or make more transparent the world’s most expensive and least efficient place to buy medical equipment and drugs? Again, we think not. Big pharma and medtech make huge margins in the USA. They will not willingly move to some web-based platform with price transparency. Amazon should try doing that in India first. America, with its stupid healthcare system, is the last place to start the revolution.
We would welcome your thoughts on this story. Email your views to Max Hotopf or call 0207 183 3779.
