The American Way of Healthcare Needs a New System of Markets

UnitedHealth Group CEO Andrew Witty is expected to offer an apology today for the February cyberattack that crippled much of the U.S. healthcare system, according to testimony prepared ahead of his likely grilling before Congress.

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"Here's the drill," Jamie Dimon said on a conference call with his management team.

"You are about to experience the most unbelievable week in America ever, and we have to prepare for the absolutely worst case. This is about our survival. We need to prepare right now for Lehman Brothers filing.” Then he paused. "And for Merrill Lynch filing.” He paused again. "And for AIG filing.” Another pause. "And for Morgan Stanley filing." And, after a final, even longer pause he added: "And potentially for Goldman Sachs filing.”

....Too Big to Fail: The Inside Story of How Wall Street and Washington Fought to Save the Financial System -- and Themselves (Penguin Books; September 7, 2010)

UnitedHealth Chief Executive Andrew Witty, who is expected to appear at House and Senate hearings on Wednesday, has said the company’s size kept the Big Hack, which crippled a network that handled $2 trillion in health claims a year, from being more harmful. It was “important for the country that we own Change Healthcare,” Witty said on the first earnings call following the attack. [UnitedHealth said in a statement last week that a ransomware gang took files containing personal data and protected health information that it says may “cover a substantial proportion of people in America.”]

Witty is likely to be asked whether UnitedHealth, which runs the largest US health insurer, employs thousands of physicians, and manages prescription benefits for tens of millions of Americans, has concentrated too much risk, and too much control, under one roof.

United Healthcare’s “important for the country” is an interesting message.

In a nuanced and supportive essay from its hometown newspaper, Minneapolis Star Tribune columnist Evan Ramstad said pretty much the same thing, drawing a parallel between the epochal collapse of the world's financial system in 2007, described above in Andrew Ross Sorkin’s book, with the mushrooming chaos in the American Way of Healthcare Powered by UnitedHealth. Ramstad’s view:

"In the last three weeks, we've seen how the Minnetonka-based company's immense size made it and thousands of companies that do business with it vulnerable to cyber criminals. It's a moment that exposes the tension between UnitedHealth's pursuit of efficiency and the country's need for a resilient health care system. Investors care about efficiency, and UnitedHealth's 400,000 employees deliver.

The company's nearly $500 billion market capitalization — or, its value — is five times greater than a decade ago. Yet like the biggest banks and utilities, UnitedHealth has also become too big to fail, or more precisely too big for America to accept failure from it."

I would argue this conclusion misses.

Markets aren't about “efficiency”. They're about power and control. And what’s been revealed by the hack on Change is this: The ability to process the economics of healthcare in the United States is the ability to manage the engine behind the world's largest economy.

In the United States, there are a small handful of 'chokepoints' upon which payments processing is a source of infrastructural advantage, the center-of-gravity around which everything and everyone else rotates. It's become a sort of 'weaponized interdependence' that, until the cyberattack on Change, was hard to see.

But the sheer size of the data cache held by Change puts this breach in a different class, writes the American Prospect in its coverage. The company, which is believed to process at least half of all the health insurance claims filed in the entire country, is the agglomeration of dozens of smaller data providers, stitched together through the years.

“It’s an order of magnitude worse than anything I’ve ever seen,” says Luke Slindee, a Minnesota pharmacy consultant who has worked for United in the past. “Change has, over a long time period, become the IT vendor of an ungodly amount of things. The reason everyone is talking about pharmacies is because that’s one of the few places in health care where stuff actually happens in real time, but I guarantee you there are entire medical offices and clinics that are not able to do anything either … Everything about this is a disaster.”

Change Healthcare is the largest electronic clearinghouse in the business, processing 15 billion claims totaling more than $1.5 trillion a year. Change owns bill collectors, consultancies, IT outsourcing firms, a bare-bones pharmacy benefit manager (PBM) that administers co-pay assistance programs and processes Medicaid claims in 11 states, auditing and verification systems, and practice managers. “The healthcare system, and how payers and providers transact, would not work without Change,” the company boasted in one prescient presentation referenced in the DOJ’s failed 2022 antitrust lawsuit to block the company’s acquisition by UnitedHealth.

No one fully understands the machinery, least of all the people supposedly in charge. So the default is a chronic groupthink, a cognitive pattern buried deeply and mostly unquestioned, accepting the rules of the game and the definitions by which to describe it.

There's only one "payer" in healthcare and that’s employers. Everyone else is a vendor, a middleman that simply occupies space, able to extract value from their positioning as a ‘control point’ across a $4 trillion system of multi-dimensional dysfunctionality.

This includes United Healthcare and its primary competitor Cigna. This includes Express Scripts and its competitor CVS Health. This includes employee benefit consultant Mercer and its competitor WTW. This includes electronic health record vendor Epic and its competitor Oracle Cerner. This includes electronic clearinghouse Change and its competitor TriZetto. Their administrative complexity gives these entitles an infrastructural advantage.

They're protected by kinetic energy and a default, if not lazy, way of procuring healthcare. Over decades they have dug wide economic moats that are impossible to cross and impervious to "fix" beyond a tweak at the edge.

The thing this moment needs is a new orbit for economic competition, a different physics, where 'gravitational pull' comes from new economic systems centered on the production of affordable health and continuous health engagement, not efficient "utilization management". And the whole things needs to rotate around a new “pharmacy” reimbursement-provider model as the keystone.

Walmart Checks Out

Walmart announced yesterday that it will close all of its healthcare clinics across the country, a stunning reversal of its plans to move into primary care.

The big-box retailer said it would also shutter its telehealth provider, which it acquired in 2021. In a release, Walmart said it could not operate a profitable business due to a challenging reimbursement environment and rising costs. “Walmart’s announcement is also another sign of how challenging it is to disrupt and radically improve American health care – an expensive, complicated and entrenched system of doctors, insurers, drug manufacturers and other players that costs the nation more than $4 trillion a year,” writes CNBC in its coverage.

It's also a sign of two other things:

- You can't "fix" an embedded economic system
- The era of "monovation" is over

When it comes to big market innovation in healthcare -- the 'next hundred billion in growth' -- the roadmap doesn't start with the conventional frame, the journey doesn't start alone, and the 'impact horizon' for vision should extend beyond three years. It starts with a keystone partner to construct a new industry ecosystem, to collaborate in an organized and persistent way to enable large-scale economic innovation.

The end state is a new system of markets with power and gravitational pull, the kind of leverage to degrade or displace the current "reimbursement environment" and forms of management keeping the status quo in control. Healthcare is an N-sided market. A modern strategy now is how best to organize the market fragments....to harness the carnival...into new economic systems.

While we can't afford to let United Health fail, we also can't afford to let it define and manage an operating system that stopped working decades ago.

The Real Wealth of Nations is at stake.

/ jgs

John G. Singer is Executive Director of Blue Spoon, the global leader in positioning strategy and innovation at a system level. To engage: john@bluespoonconsulting.com

Disclaimer: I previously held the role of Chief Strategy Officer for Cognizant’s healthcare business unit, which owns TriZetto.