(Bloomberg) -- Atul Gawande, a surgeon and journalist who has written extensively about the U.S. failure to grapple with rising health-care spending, has been named to head a new health venture for Amazon.com Inc., Berkshire Hathaway Inc. and JPMorgan Chase & Co.
The new firm -- meant to help the three companies improve care and lower costs -- will be based in Boston and Gawande will start on July 9. It will be independent from the three firms, whose leaders formed the group as a way of contending with what Berkshire Chief Executive Officer Warren Buffett called a “tapeworm” eating the U.S. economy.
“I have devoted my public health career to building scalable solutions for better health-care delivery that are saving lives, reducing suffering, and eliminating wasteful spending both in the U.S. and across the world,” Gawande said in a statement from the group announcing his appointment. Along with his writing and medical practice, Gawande is a professor at the Harvard T.H. Chan School of Public Health and Harvard Medical School.
Gawande is a prominent name in health-care policy circles, though hasn’t run a major business. Many details of the new venture -- its name, size, budget and authority -- weren’t immediately available. It will be an “independent entity that is free from profit-making incentives and constraints,” the group said in the statement.
“Almost of the same import is who does Atul hire as his COO,” said Vivek Garipalli, the CEO of Clover Health, a closely held health insurer that serves Medicare patients, and has focused on coordinating their care to try and cut costs. “That vision has to be translated by somebody who understands the nuances” of contracting with doctors and hospitals, health insurance markets and other details.
Big Goals, Big Challenge
The companies announced in January that they were forming the venture to improve employee health care. JPMorgan CEO Jamie Dimon and Buffett have since said it could take years for the venture to show results.
Employers are the largest providers of health insurance in the U.S., giving more than 150 million people access to coverage. Insurance premiums have soared 55 percent over the past decade, according to the Kaiser Family Foundation, contributing to the growing dissatisfaction voiced by employers.
Gawande, 52, rose to prominence among health-care policy experts with a 2009 New Yorker article, “The Cost Conundrum,” that examined why health care was vastly more expensive in some parts of the U.S. than others, despite little difference in the sickness or health of people getting it. The piece focused on McAllen, Texas, and why the Medicare program spent $15,000 a year on the town’s older patients, thousands of dollars more than in other areas.
At the time, the article also attracted the attention of Buffett and his business partner Charlie Munger. Gawande “had an article last summer that was absolutely magnificent,” Buffett told CNBC in March 1, 2010, according to a transcript of the appearance.
“You have these enormous variances around the country. And, you know, if you had some really smart people running it that knew a lot about medicine, they’re going to -- they could do a lot about it,” Buffett said in the appearance.
Munger thought the article was so socially useful that he blindly mailed Gawande a $20,000 check, Buffett told CNBC at the time. Gawande donated the money to an international project to improve surgical equipment in developing countries, according to the Huffington Post.
After the 2009 article’s publication -- as well as a few prosecutions for fraud -- McAllen’s Medicare costs dropped by almost $3,000 per patient from 2009 to 2012, Gawande wrote in a 2015 follow-up article. He credited primary care doctors with spearheading the improvements.
The choice of Gawande suggests that the venture will take a broad look at how to approach fixing health care, Ana Gupte, a health stocks analyst at Leerink Partners, said by email.
“The ABC coalition is looking not at the drug value chain in isolation, but more broadly at the overall health-care system across payors and providers of care delivery,” Gupte said.
“His work has largely been focused on quality and safety,” said Paul Keckley, an independent consultant who has worked with health plans and hospitals.
“That looks to be a selection with marquee value, but the promise that Amazon, JPMorgan, and Berkshire made is to be a disruptive force in the industry that would reengineer it toward more value and lower cost,” Keckley said. “You imagine that Atul will be a very effective spokesperson, but they’re going to have to bring in a pretty strong team under him.”
Fed up with the status quo, some major firms like Walmart Inc. have separately experimented with bypassing insurers entirely, instead buying health care for their workers directly from doctors and hospitals.
Meanwhile, health-care companies are embarking on a wave of unconventional deals to broaden the services they offer. The drug-store chain and pharmacy benefits firm CVS Health Corp. is acquiring insurer Aetna Inc., while insurer Cigna Corp. agreed to buy the drug benefits firm Express Scripts Holding Corp.
The Amazon-Berkshire-JPMorgan venture could put pressure on those middlemen. Buffett has said his ambitions are larger.
Health-care spending is taking up an increasing proportion of the U.S. economy, and a goal of the venture is to “at least” halt that, Buffett said on CNBC in February. He added that he hopes “we could find a way where perhaps better care could be delivered even at somewhat lesser cost.”
The companies have indicated a more modest initial goal, saying they want to use technology to reduce costs and improve care for workers.
Dimon, in his annual letter to his bank’s shareholders, also laid out a broader agenda: aligning incentives among doctors, insurers and patients; reducing fraud and waste; giving employees more access to tele-medicine and better wellness programs; and figuring out why so much money is spent on end-of-life care.
“We’ll see, it’ll be fun to watch,” Keckley said.
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