Curious Times and Curious corporate bedfellows


Dear Jeff, Jamie and Warren

We haven’t met, but each of you express a candor that suggests you are open to informal input.

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Naturally, I was not alone in my surprise over  your companies- JPMorgan Chase, Berkshire Hathaway and Amazon announced plan to enter the healthcare marketplace.  The cover story I saw, explained your unified commitment to contain, if not reduce employee healthcare costs, without mentioning  any specifics.

My first thought was perhaps this was a prelude to a presidential bid.  The announcement’s bold leadership play has garnered great public enthusiasm.  My second thought recognized  the power vacuum that followed the failure of the national government to make change. Your united commitment, and unspoken appeal for other CEOs to join you could create further momentum for market driven change.

These thoughts still didn’t feel quite right. I remain optimistic and root loudly for other change agents to shift the tide.  As we all know, the challenge to deliver healthy outcomes and affordable healthcare for all are not one dimensional. The complicated systems presently in place fail to address the larger complex inter-relationships between community and individual health.

Have you read David Freedman’s recent assessment of US healthcare system conundrum?  It’s not that long, and should be a required read for every team  contemplating entering this space. He writes

“It’s easy to think of “health” as just another category of social-service spending. But a great deal of modern research suggests that it might be more accurate to think of it as the payoff of all the other services put together.

Are you Seizing advantage or opportunity?

I do hope this announcement, in spite of subsequent commentary suggesting otherwise, that your three musketeer esprit de corp adds up to more than a pure group purchase power play. Elizabeth Rosenthal commentary in the NYTimes explains

“Together, these three behemoth corporations will be able to wrest great deals and discounts in their negotiations from hospital systems, drug manufacturers, medical device makers and doctors’ groups.”

OK, it’s why I’m asking you to widen your goal. Don’t  settle for negotiating a better deal than what  present healthcare arrangements are able to wrangle.

To Jeff, I wondered why you sought out Jamie and Warren to play in an arena internally Amazon team’s have been working, and compromise your reputation and general industry slaying capacity? Amazon’s platform successfully  delivers efficiency and value to end users. Are you suddenly squeamish about squeezing healthcare providers and yes, your employees too?  Scott Galloway, the NYU Stern faculty describes in The Four  your outsized vision has long exceeded the pure e-commerce play that is Amazon today.  Galloway further empathizes your tireless advocacy for technology  touched by realism about automation’s impact and downstream effect on wages.

These last points makes Jamie a strange bedfellow, as the banking business depends on individuals’ with incomes.  But that’s a different letter and article.  Jamie, under your leadership JP Morgan Chase offers expertise in compliance, as well as payments and savings that can create some cost saving synergies in Healthcare.  More importantly, both industries service and needs are intensely local and subject to state regulations.  The consolidations in both banking and healthcare had to rethink bricks and mortar location and staffing. Increasingly, financial services delivery via un-staffed, self-standing kiosks/ATMs and/or rely on mobile enabled applications. Banks, relative to healthcare, historically leveraged technology savvy to fuel growth balance risk and reward effectively and efficiently.  Jamie your investments and innovation, though slow starting, and less evenly distributed across the investment, consumer and commercial bank–they do suggest you can leverage the to deliver greater opportunities and create value in  Healthcare.

Warren,  I’m also hoping these are a few of the elements of value you spotted too.  Again, several closer observers of your group planning reiterate that limiting your collective primary intention to lowering employee healthcare costs, reduces the life value of the proposal. That shortsighted objective is certainly not likely to deliver the return on investment necessary to make a dent.  I’m counting on you Warren, and your experiences creating larger and profitable opportunities from reorganization.

The flaws in a hasty solution

I’m equally certain you all noticed the dramatic rise of Net Income among healthcare insurers.  If you haven’t finished a deeper analysis, start with this one by the Leavitt group that reveals a more complex picture.  “[I]nsurers made money in the Medicare, Medicaid and group health insurance markets and lost money in the individual market, which is why some of them exited the individual market in many states.” 

As early as 2006, Michael Porter summarizes the strategic dynamics and cost challenges associated with creating quality healthcare outcomes in   Redefining Health Care: Creating Value-Based Competition on Results.  The environment he  describes of dysfunctional competition leads  players to “strive not to create value, but to capture more revenue, shift costs, and restrict services.” Porter felt that healthcare lacked discipline and a management and business focus.

Jeff, Jamie and Warren is that your take too?

I don’t know if it was conversations at Davos and chats with deeply knowledgeable wranglers of this problem that inspired you to act.

I’m inspired by data. As the Affordable Care Act continues to make available additional data, it’s possible to learn more about what works.

Since 2006, researchers in both social and medical science enable more models of service and extends understanding of human health at the individual and population level. Much of healthcare activities used population data to allocate resources. Efforts to reduce costs associated with an individual can now take into consideration individuals’ behaviors.  Continued use of aggregate process and success measures mask the affects of too many associated care conditions and reactive activities.

There’s a complex relationship among these issues, and how they are translated into interventions and dosage appear to prevent rather than deliver consistent beneficial outcomes. Hilary Hatch the CEO of Vital sign offered this explanation:

“Population health puts people into categories by conditions (diabetes, hypertension, depression), age, lab results and medical billing data. These categories presume their own importance. When in fact, psychosocial, behavioral and environmental factors determine individual health far more.  Patient goals, preferences and barriers to care tell us what stands between that patient and better health. Without this data, population health efforts are undermined.

The explosion of personal health monitoring devices correspond with more data that contribute to advancing understanding of the workings of the human body.  Another entrepreneur, Mario Schlosser recognized that “no entity in healthcare  has enough data visibility to help you[individuals] navigate the system.”

Is this your collective aspiration too?

Why not just partner with Success?

A few weeks ago, I attended a presentation at Chicago Booth’s Rustandy Center by the Chief Medical officer for Oak Street Health, Griffin Myers  This new medical group does not serve everyone, but the patient population they do serve have consistently better outcomes.  The business model that Oak Street Health adopted throws out the traditional fee for service model insurers favor. Instead they get paid when they deliver services that work, the successful outcomes embodied by Accountable Care Organizations as specified in the Affordable Care Act.   Oak Street established a value-based care delivery model exclusively serving  Medicare (and Medicaid dual-eligible) patients in low income areas. They presently operate 24 clinics across Illinois, Indiana, and Michigan.

This intereview with Griffin Myers on Tasty Trade gives a great overview

Another alternative model of care that should inspire the three of you is Oscar Health, whose estimated valuation of $2.7billion, and claims to be the first technology-based insurance company. Mario Schlosser, an immigrant from Germany realized before the birth of his first child an opportunity to put his own special skills as a data scientist to work.  His first hand experience navigating the complexity of  the healthcare system led him create Oscar Health in 2012. The company “uses data and product design to guide you through your health care and get you healthy.” As of Oct 2017, he has raised over $720 million and  delivers over 100,000 patients  concierge style team care in New York, New Jersey, San Francisco, Cleveland, Nashville, Austin, San Antonio, LA and Orange County.  Note, many of these cities feature innovative health care service providers but  boast a volume of technology talent too.

This interview with Mario on Techcrunch Disrupt in 2017 is a good overview.

 

Both these approaches recognize that healthcare requires high touch, and a constellation of services to produce the desired outcome.  Both of these innovative for profit companies are heavily invested in use of  data and  technology.

So Jeff, Jamie and Warren under your leadership, will you be equally committed to  facilitating connections between traditional care givers, services and systems or just cut out the human to human touch?

Whatever you do, it will be interesting and I’d be happy to help.

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To win the game, we have to change the game


I can’t imagine the pressure on a CEOs when their organization misses the targets t120918053535-out24-shareholder-value-gallery-horizontalhey set for themselves.  How can they not take the failure personally?  More importantly, how do they turn the fail into opportunity?  Frequently, they publicly declare to the world renewed commitment to their strategy, reassure everyone that  management  knows what it’s doing and asks stakeholders to have a little faith.

A glorious future beats a glorious past.

This past week, Warren Buffet of Berkshire Hathaway released his annual shareholder letter and so did another hedge fund billionaire, Edward Lampert, the Chairman and now Chief executive of Sears Holdings comments.  2012 was tough on both companies.

Buffett reminded shareholders of his long-term management contribution:

“Over the last 48 years (that is, since present management took over), book value has grown from $19 to $114,214, a rate of 19.7% compounded annually.”

Lampert acknowledged his pride in the company associates for their resiliency in 2012 and then expressed the following:

“After reporting poor results for 2011, culminating in a very poor fourth quarter, we declared that we would take significant actions in 2012 to restore confidence in and financial stability to the company, while, at the same time, remaining focused on transforming Sears Holdings and creating long-term value for our shareholders.”

The vast differences between the diverse portfolio holdings of one  make comparisons to a single narrow industry portfolio holding company difficult, but it’s the philosophy of these two successful financiers that caught my attention.  Buffet’s reputation and success remains untarnished as he acknowledges sub par performance, meaning below the returns of the S&P 500.  Likewise, Lampert’s nod from his board to take the CEO reigns indicates their great faith in his judgment.

Both of these leaders inspire others to believe but how much do they expect shareholders to understand?  Rereading both of their letters, a wonderful clarity of mission and dedication to longstanding strategies can’t be missed.

Buffett draws readers attention to three elements that unlock the portfolio’s Intrinsic business value: one qualitative and two quantitative measures–per-share investments and per-share pre-tax earnings from businesses other than insurance and investment.

Lampert talks about creating long-term business value with an interesting description of EBITDA.  He shares an analysis of  value added by closing non-performing stores that reduced investment in non-performing stores but provided upside when the real estate sold.

An initial read shows just how similarly these two financial wizards think.  But who needs inspiration? How will sharing beliefs in these fundamental principles help hold the relative  position?

Which rubber and which road matter

Theory doesn’t always make for good practice and now matter what plans you make, until put into motion it’s impossible to know the results. The best predictors can’t incorporate every possible condition and inevitably some expectations go unrealized.

That’s where belief really counts. Funny, ever wonder why people believe what they believe?  It turns out that believing doesn’t require understanding; but it does color our interpretation.  Make believe, the imaginary is anything but real. Our beliefs and the way we interpret or make meaning of our reality is largely but not exclusively determined by the most recent experience and current context. This is the Halo effect at work which predisposes us to favor what we believe and what we first hear or see.  No experience? Ambiguity gets resolved unconsciously, consistent with context.

The more diverse  and numerous our experiences, the greater the number of differences or nuances in our understanding which results in unpredictable results.

Change the frame or limit the context of shareholder value to  financial expressions like EBITDA will reduce the variance in meaning. Formulas and standard accounting practices assure investors of an equivalence which makes EBITDA meaningful regardless of their depth of understanding, while also increasing the power of their belief in the financial measure to provide great meaning.

But accepting an idea doesn’t mean we believe it. Ever take a test that resulted in a wrong answer?  Perhaps, you asked why your answer was wrong, convinced you had it right.  Maybe your answer didn’t match the expected answer and so the first evaluation was incomplete.  Your answer didn’t make sense to the grader though it was still correct. An equilateral is both a square and a rectangle. Since different experiences lead to different beliefs both generate even greater diversity of understanding.

Big ambiguous ideas like shareholder value may be easy to believe but harder to understand and harder still to set clear, consistent actions into motion.Easy to measure share holder value at a point in time, but CEOs tasked to deliver it going forward need to provide greater clarity, less ambiguous and more specific associations and not risk letting recent experiences or context prove its meaning. What actions does the CEO wish to inspire, what associations does their message need to imply or offer guarantee?

Shares imply ownership and the value suggest material wealth.  For Berkshire Hathaway, a shareholder owns parts of lots of different companies with an assurance based on Buffets statements and reputation that their wealth will grow.  For Sears Holdings? Shareholders own a portion of physical tangible business components that are much harder to guarantee growth.

Align beliefs with understanding

If I yell Fire, everyone reacts almost immediately and reaches the same conclusion–flight.  There’s no visible delay between the declared message and the actions it produces.  The brain wastes no time finding the best match and cues our nervous system and muscles to respond.  No conscious awareness of decision or choice seems at play, move first,  think later. The instantaneous assessment of the environment places Fire in context, and fits a pattern in our memory, and a complete script presents itself making our next moves clear.  We are off following it without questioning its veracity, or applicability. We pay attention to what the script tells us not the ambient information surrounding us, unless of course that information boldly interferes with the expectation found in the script.

Simple question, which scenario came to mind for you?

1. I yell fire when the tinder in the hearth finally catches, and you left the fire pit at the campground to go find matches or more kindling nearby.

2. I’m cooking over a grill and yell Fire when the grease from the chicken has dripped off the foil, landing on the hot coals.

3. I yell fire when I smell something burning and see smoke in great quantities billow around the curtain on the stage in front of us.

I’m betting that your imagination took you to scenario three, the one that represents a scary, fearful situation. Especially since the idea was raised in a wider discussion of shareholder value or returns, a topic that triggers a similar set of automatic reactions depending on the experience or understanding of the listener.

The financial media pundits provide language that makes sense to their readers without appealing to the experience or context of employees or customers.  Our word choices even with the best of intentions don’t guarantee translation of similar expectations and in the case of shareholder value don’t make it easy to make a move without understanding more.

Leaders use of language creates expectations across a diverse set of audiences with vastly different understanding.  To get the people in your organization to produce the necessary EBITDA should the burden of understanding be drilled down to the lowest level of the organization?  Telling them about the challenge or demanding the performance may set the expectation, but leadership needs to do more.  They need to engage in the language and experiences that will trigger the scripts and make it possible for employees to believe their doings and their actions help. I have faith that Lampert is on the task.  It was his words that inspired this post.  His articulation of the convergence of new behaviors made possible by technology supported knowledge, a  complex transformation experience currently shared by many businesses.

Lampert isn’t the only one with an offensive strategy attempting to get out ahead of the curve.  JCPenney, Best Buy and now Barnes & Noble are all experiencing the loss of faith by shareholders that parallels the lost faith of their customers and employees.  As Buffet remarked in his letter, this is not a time for waiting.

“The risks of being out of the game are huge compared to the risks of being in it.”

Lampert’s plans?

“…we will use technology and training to encourage and embrace feedback to improve and make it much more transparent to everyone, thereby increasing accountability at the store and associate level.”

Both of these successful men know what can happen when you yell Fire.  Let’s just hope that the script that gets activated keeps their stakeholders on the same page.  Challenging but not impossible.