To disrupt health care, Berkshire’s partnership must confront chronic conditions and drug prices

The cost of prescription drugs is one factor in the high cost of health care in the U.S. Even some old drugs are being priced far higher than their historical cost. (Photo courtesy Flickr/Jamie)
February 6, 2018 - 6:45am

Warren Buffett’s Berkshire Hathaway will team up with the online retailer, Amazon, and investment bank, JP Morgan, on a project to lower the high cost of health care in the U.S. Buffett has called health care spending a “tapeworm” on the economy.

The U.S. spends $9,892 per capita on health care, more than any other industrialized country, according to numbers compiled by the Organization for Economic Cooperation and Development (OECD). Switzerland is second at $7,919.

The numbers aren’t quite so lopsided if you add the cost of other social programs that promote public health, says Dr. Tom Tape, Chief of General Internal Medicine at the University of Nebraska Medical Center, but the underlying problem remains. Health costs have surged over the last twenty years for many reasons.

“The aging of the population, development of newer and more sophisticated technologies and treatments, the rising cost of new pharmaceuticals to name a few,” Tape said.

Just how Berkshire Hathaway and its partners plan to tackle the cost of health care is unclear. The group said little more than that it intends to create an organization to come up with solutions, not to make a profit, and that the first focus would be on technology.

“The ballooning costs of healthcare act as a hungry tapeworm on the American economy,” Buffett said in a statement. “Our group does not come to this problem with answers. But we also do not accept it as inevitable.”

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Dr. Tom Tape, UNMC’s Chief of General Internal Medicine (Photo courtesy UNMC)

Dr. Michael Ash, UNMC’s Chief Transformation Officer (Photo courtesy UNMC)

If Warren Buffett were to call for some advice on how to lower costs, Tape says he would start with coverage.

“The first thing I’d do is to strive to achieve access to primary care for every patient in the population,” Tape said.

When people lack health coverage they often end up going without care, Tape says, landing in the emergency room when their untreated conditions reach crisis levels.

“We do have a law on the books that emergency departments can’t turn away patients for their inability to pay, and yet they’re seeking what is essentially basic care in one of the most expensive venues in our system,” he said.

Keeping watch over chronic conditions

Chronic conditions are another driver of health care costs. If illnesses like heart disease or diabetes aren’t managed closely, they can lead to expensive complications.

Dr. Michael Ash, the Chief Transformation Officer at UNMC, has been spending a lot of time thinking about how those chronic diseases can be better managed through technology, the kind of solution he suspects would appeal to a company like Amazon.

“What the technology allows is more of a continuous monitoring, almost a virtual gown, I’m always a patient,” Ash said. “You can have in your house scales, blood pressure cuffs and other devices that can monitor and, based on electronic algorithms, determine whether (the reading is) normal or can alert a physician.”

Ash says UNMC and its related health network, Nebraska Medicine, are studying the potential cost benefits of using technology to monitor a group of patients with advanced diabetes.

“Their weight, their blood pressure and how their blood sugars are doing in their body are electronically recorded and transmitted to someone who’s monitoring,” he said.

The person monitoring patients’ blood sugar levels can intervene when the levels go too high or too low, possibly preventing emergency room visits and hospital stays and keeping patients healthier in the long run.

“So the technology has some cost, but in the big scheme it’s actually reducing the overall cost,” Ash said.

Old drugs, new price

The high cost of prescription drugs is another factor in the cost of health care, and it appears to have the attention of the Trump administration. President Trump highlighted the issue in his State Of The Union address.

The rising cost of drugs has also been a concern for Tom Tape. While there are some new, sophisticated drugs that are expensive for pharmaceutical companies to develop, others have been around for decades. Insulin has been used to treat diabetes for a century, Tape says, but the cost of insulin has risen recently to around $200 per month.

“I have a patient whose diabetes has been horribly out of control. She said, ‘Well, it’s either insulin for me or food for my children and I made a choice to feed my children,” Tape said. “So I think there are some opportunities for the regulatory agencies to look at cases where the costs have been inflated way beyond what the technology and (research) aspects would suggest would be reasonable."

Drug companies are able to set new, higher prices for old drugs by making small changes to the formula or delivery method, something hedge funds and other investors have been keen to take advantage of, says Michael Ash.

“We have in-patient medications that used to be less than $40 dollars that are now over $15,000-$20,000 per use,” Ash said. “If you look at the financial sectors, last year’s market did incredibly well. If you look at some of the health care companies, they did ridiculously well.”

Tape says allowing Medicare to negotiate drug prices could help make them more affordable. He says the Veterans Affairs Administration already negotiates costs for veterans.

Berkshire Hathaway did not mention going into the business of selling discount prescriptions, but Ash says if the company did go that direction, he’d be all for it.



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