The initial battle lines were drawn some months back when Jeff Bezos, Warren Buffett and Jamie Dimon recognized a unique opportunity to dip into the wasteful troughs of American healthcare and targeted the control center of the Medical-Industrial Complex – the Pharmacy Benefit Manager. The PBM’s with original parentage from Merck, United Healthcare and CVS, are fast at work formalizing the rules of the syndicate game with hidden kickbacks that deal in everyone…except the patient.
Amazon, Berkshire and JP Morgan sees big money and a truck load of “non-real work” in the pushing and reshuffling of pills, data, and cash, and correctly is in the process of seizing opportunity. It’s a “Why not us?” moment.
In response to Amazon’s move and CVS/Caremark’s grab for insurer Aetna, Cigna has made a play for Express Scripts. All this bottom-feeding capitalism understandably attracted Carl Icahn who has now launched a shareholder move to squelch the Cigna move (probably because he has shorted his position with Express Scripts.)
Icahn’s open letter states, “When Cigna entered into this agreement several months ago I believed a $60 billion purchase price made no sense, but there were at least arguments that could be made by management to try to persuade us into thinking that it was not completely ridiculous. These arguments now disappear in light of certain material events of the last month, such as Amazon’s almost certain entrance as a competitor to Express Scripts and the government’s direct challenge to the highly flawed rebate system. As a result, Express Scripts’ earnings will almost certainly be seriously diminished, but even more importantly, Express Scripts will be existentially challenged, i.e., their very existence might well come into question over the next few years.”
Carl is right about the existential challenge to Express Scripts, but wrong about the reason. It’s not Amazon’s competitive advantages in moving product, but disruption on a far greater scale that is the threat. The “health care bubble” now consumes 1 in 5 American dollars and is about to burst in three doable steps:
1. Single Payer: Centralizing purchase of universal insurance will shave 15% off the health care bill and relegate the Aetna’s and Cigna’s to government contracting and provision of supplemental health plans to cover services outside the basic benefit package.
2. Reference Pricing of Pharmaceuticals: Forget buying drugs from Canada. Instead do what Canada and all the European governments do. Set standard pricing annually for your list of approved drugs based on an average of seven or eight nation’s prices around the world.
3. Eliminate DTC advertising: Like every other nation in the world, a ban on this practice will radically decrease demand for pharmaceuticals, and secondarily challenge the concept that “fighting disease” is the same as “achieving health.”.
These three actions will not only disrupt PBM scheming on behalf of the Medical Industrial Complex, it will eliminate the need for their very existence. As for the “bubble”, plan to see $1 trillion of the current $4 trillion annual spend reallocated (wisely we hope) to other purposes over the next 2 to 4 years.
As for the “non-real workers” (there are 18 health care employees for every one doctor, and ½ of these are non-patient care related), you need not worry. They will follow the money elsewhere.
Carl Icahn is right but for all the wrong reasons. Amazon is neither salvation nor threat here. At best he’s a future government contractor. It’s the bubble with fall-out disruptive reform solutions waiting in the wing that he should be watching.