Doesn’t Kaiser Permanente Already Do What Amazon, Berkshire Hathaway, and JP Morgan Want to Do?

When Amazon, Berkshire Hathaway, and JP Morgan Chase made a brief announcement this week that they intended to start their own health care company, the news roiled markets, particularly in the health care sector. But some analysts scratched their heads. Doesn’t Kaiser Permanente, the largest managed care provider in the country, already disrupt the health care oligopoly let by UnitedHealth Group?

Yes, and no. It is true the Kaiser Permanente often offers the best value in premiums to all levels of employers and employees by virtue of their captive web of salaried physicians and nurses and in-network medical facilities. But it is also true that Kaiser’s cost and pricing structure is a simulacrum of their competitors–with the same arcane and opaque cost structures and billing systems and the inability to offer their patients true price competition for medical procedures. Thus while Kaiser offers value to its customers, it is not truly disruptive to the industry as a whole.

Physicians and nurses detest Kaiser Permanente. Kaiser spurns the fee system that allows primary medical care providers to amplify their earnings at the expense of patients, choosing instead to offer salaries and stacking schedules with patient appointments. The effect is sort of a medical factory rather than the romantic picture of TV medical shows.

Patients detest Kaiser Permanente. The company assigns primary care providers, offering only a limited managed choice to patients. Thus the primary bugaboo of the US health care system, physician choice, is completely eliminated. This is great for managing costs, but terrible for patient empowerment. This makes it easy for Kaiser’s competitors to maintain market share.

Medical suppliers and drug companies detest Kaiser Permanente. Kaiser has the economic clout to force low prices on their suppliers. Some of these savings trickle down to their patients and customers, but not in a meaningful way.

As a result, people either love or hate Kaiser Permanente. The haters have plenty of options to avoid the managed care company. The lovers pay their slightly lower premiums and feel they are getting value, and the primary care providers sight in relief in not having to shoulder malpractice insurance premiums and ruinous administrative costs inherent in self employed medical practices.

As for ABHJP, Kaiser Permantente represents a tantalizing possibility rather than as a real solution. Tantalizing because the real possibility of medical cost reform that Kaiser’s managed care platform represents. But not a real solution because of its legacy cost architecture and lack of scalability. But ABHJP is looking for real disruption–disruption that will significantly enhance their bottom lines, provide a competitive advantage in attracting employees, and finally crack the tough nut that is oligopolistic health care industry–forever.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s