Schaudenfreude Alert: Bezos-Buffet-Dimon Health Care Industry Disruptor Haven Makes Faceplant, Announces Closure
Funny how hindsight bias works. In early 2018, Warren Buffett (Berkshire Hathaway), Jeff Bezos (Amazon), and Jamie Dimon (JP Morgan) announced that they had started a venture that despite its haziness and lack of a name, aspired to lower costs and improve health care for employees. Yesterday, the backers announced that the initiative, called Haven, is being shuttered. But in an effort not to depict this initiative as a total bust, the sponsors said they were carrying on with various elements of the enterprise, separately, and most the staffers would get jobs at one of the founding companies.
The press is now curiously awash with experts commenting on the Haven closure, saying they knew it would never work. Although some may be able to produce press clips to substantiate their claims, health care industry investors and incumbents were freaked out enough by the prospect of squillionaires swooping in to squeeze their margins that health care company stock prices fell sharply and broadly upon the announcement.
And remember, this was 2018, close to Peak Unicorn. Even if the three lords of lucre couldn’t necessarily come up with a health care “innovation” concept that made money, Uber and Lyft had demonstrated that was no obstacle to getting oodles of funding. The play could wind up being like the building of the railroads, where the profit in the enterprise wasn’t in moving stock but selling shares. And only now are tech writers finally admitting that self-driving cars are not only not coming any time soon, but when they do, they will likely have narrow uses, including requiring dedicated lanes.
Lambert tried to get his arms around what he then had to call “the undertaking” due to its lack of a name, and he was as skeptical as one could reasonably be. After all, Amazon’s involvement suggested if nothing else there could be a play in purchasing, so it was hard to dismiss three rich but generally pretty smart guys having a go at health care….even though none of them had meaningful industry knowledge.
Now that the undertaking is officially kaput, we’re learning why. One reason is that it never looked even to have been structured in a serious way. Haven is widely described as a joint venture. Joint ventures are unstable structures and typically either fail or the dominant party buys out its partner (sometimes with the other founder retaining a profit participation). And they are typically established with each of the two parties providing relevant and presumed-to-be-complimentary assets and expertise. Here there’s zilch in the way of relevant existing know-how. And the main asset each of them has is money, which is nice but does not confer a competitive advantage.
Needless to say, a three-headed joint venture is even more of “who’s in charge” fight waiting to happen than the more conventional two party version.
Another common problem with joint ventures is that the parents seldom give the joint venture entity exclusivity. The parent then competes with it. That happened here. Per STAT:
Some of Haven’s efforts also overlapped significantly with Amazon’s internal health initiatives, such as Amazon Care, Amazon’s own effort to provide virtual and in-person care. A former Haven employee told STAT that while Haven stalled, Amazon appeared to turn to Amazon Care as a primary vehicle to accomplish some of its same goals.
One key issue facing Haven was that while the firm came up with ideas, each of the three founding companies executed their own projects separately with their own employees, obviating the need for the joint venture to begin with, according to the people, who declined to be identified speaking about the matter.
A second reason is that Haven appears to have been utterly unserious. It has all of 57 employees. Now perhaps that’s the result of the messy governance, or the lack of an idea of what its business should be.
The third is that to the extent there was an idea, it was dumb. From Lambert’s post:
So, let’s look at the announcement, and try to dope out what we can from it….
The three companies, which bring their scale and complementary expertise to this long-term effort, will pursue this objective through an independent company that is free from profit-making incentives and constraints. The initial focus of the new company will be on technology solutions that will provide U.S. employees and their families with simplified, high-quality and transparent healthcare at a reasonable cost…
 “simplified, high-quality and transparent healthcare”: I have to say I boggled a little bit at this. I don’t see how health care, as such, can be “transparent.” I can see how the process of delivering it might be, but not the care itself. What on earth can possibly be transparent about an appendectomy, or (taking things to the extreme, and assuming dental) extracting a wisdom tooth, or (moving to outright fantasy) therapy? The same goes for “simplified.” As for “high quality,” what’s the metric? Customer satisfaction?….
One potential avenue for the partnership might be an online health care dashboard that connects employees with the closest and best doctor specializing in whatever ailment they select from a drop-down menu. Perhaps the companies would strike deals to offer employee discounts with service providers like medical testing facilities.
Erik Gordon, a professor at the University of Michigan’s Ross School of Business, predicted that the companies would attempt to modernize the cumbersome process of doctor appointments by making it more like booking a restaurant reservation on OpenTable, while eliminating the need to regularly fill out paper forms on clipboards.
On the surface, the dashboard and the dropdown are as banal and misconceived as Obama’s vision of how ObamaCare’s “marketplace” would work: “just like you’d buy a flat-screen TV or plane tickets or anything else you’re doing online.” For example, the dropdown assumes that patients have already self-diagnosed. You aren’t going to want to pick “hypertension” off a [family-blogging] drop-down menu, and I very much doubt a software developer is going to choose “ringing in the ears,” or “shortness of breath” as menu items. Ditto the “funny mole” menu item for the case of cancer, right? Honestly, what are these people thinking? Similarly for Gordon’s galaxy-brain concept of making booking a doctor’s appointment like making a restaurant reservation, which takes no account of narrow networks, for starters (and also involves an Amazon-style workforce; I know someone who ruined their health at an OpenTable call center).
Notice that none of this hooplah solves any patient or medical provider problem. Is it really that hard to book an MD appointment? Many uses ZocDoc or similar online services. Some *OMG* have assistants that are efficient with e-mail. And I find with these alternatives to a call that there’s often enough writing or field-filling-out that it takes no less time than a call, and sometimes more. And is there really much value added in addressing a problem that trivial, particularly if you are going to have to do new coding to deliver it, which means costs that somehow need to be recouped?
More important, no one wants to shop for doctors. Various healthcare reform schemes have to promise that patients can keep their current MD. Patient ratings aren’t a great proxy since patients seldom can evaluate the quality of the advice they get, save for serious screw-ups. And patients are more likely to get the benefit of placebo effect from a doctor they trust, which is more likely to be one with whom they have an established relationship than a newbie.
This online shopping concept is barmy because most medical services are not fungible, even upon occasion minor ones like blood draws. I often get turned into a pincushion when MD’s nurses try to get my blood so I go to a clinical lab, since the techs draw blood all day and are generally better at it by virtue of practice. Even so, in NYC, heart of doctorville, I had certain labs I avoided because I found out the tech normally there when I would want to go in would still bruise me up. So if some patients care even about the delivery of what the medical industry views as a commodity service, imagine how this rolls up to more complex procedures.
Not surprisingly, with no obvious need to address, beyond “American health care costs too much,” Haven failed to come up with a product or service. Again from STAT:
Despite its lofty goals, Haven ultimately lacked a clear vision as well as a strong leader who could steer the ship, former employees and outside experts in business management have previously told STAT.
“They didn’t come up with a big, executable idea,” said Erik Gordon, professor at the Ross School of Business at the University of Michigan. “There was this general chat about access, primary health care, and transparency, but not a big idea about how to get those end results.”
And it isn’t as if any of the founders had a brilliant idea of how to solve the overarching cost conundrum. Again from CNBC:
The move to shutter Haven may be a sign of how difficult it is to radically improve American health care, a complicated and entrenched system of doctors, insurers, drugmakers and middlemen that costs the country $3.5 trillion every year. Last year, Berkshire CEO Warren Buffett seemed to indicate as much, saying that were was no guarantee that Haven would succeed in improving health care,
A final failing is the merry trio not recognizing that they were very late to this party. Private equity has been after health care products and services for the better part of two decades. The firms have been extremely good at finding choke points where they can dominate a niche and engage in monopoly/oligopoly pricing. And those choke points rarely have to be national. For kidney dialysis services, for example, you can control pricing if you establish a leading position in a major metropolitan area.
I am personally delighted that this venture failed. The only way I could see a scheme like this generating enough revenue to capture the attention of three super rich guys was if they found a way to insert themselves into enough patient relationships so as to extract and sell data. As a privacy fetishist, I would do everything I could to stay out of their clutches. Thank goodness I won’t have to.