The dark view is that pockets of rent-seeking are endemic to the American Way of Healthcare. Wherever products are too complex for customers to understand, and where complex regulation add to the muddle, huge profits can opaquely be made by producing income without producing health. Instead of strategies that compete and reward because they improve outcomes or access, rent seekers attempt to increase their share of existing wealth through manipulation of their legal environment, controlling the practice of medicine, or by defining the context, and therefore the path, by which “innovation” is brought through the jungle.
You could say they are hollow, more of an appendage, whose ‘storyline of value’ doesn’t have the compute power to grow the wealth and health of a nation.
Epic is the biggest name in health IT and, by all accounts, only getting bigger. But is Epic’s dominance good for the United States as a whole? Does Epic enable competitive advantage, or does it sustain strategic drift and decay in a $5 trillion system of markets stuck in low-Earth orbit?
The EHR vendor controls nearly a third of the strategically-collapsing hospital market in the United States and continues to add large health systems to its portfolio. (It is also expanding internationally — Epic is embedded in at least three strategically-collapsing NHS trusts; it also runs across all public hospital clusters in Singapore, covering over 6,000 beds, and last year won a province-wide rollout in Newfoundland and Labrador, covering 28 hospitals.)
But is the company's reign a positive or negative for healthcare?
Positioning the question differently: Does the Epic ecosystem help the United States compete against China, or is Epic simply an underground empire, writing the code to sustain its own flywheel?
Katie Jennings, a senior writer at Forbes, captures the nut of the problem in her piece, ‘The Billionaire Who Controls Your Medical Records’.
"Hospital executives are often more committed to Epic than most Americans are to their marriages. Epic’s average customer has been using its software for ten years, and Faulkner claims the company has never lost an in-patient hospital client. Partly that’s because it’s so hard to leave."
It’s hard to displace an embedded economic system.
The same sort of ‘problem statement’ could be asked about displacing another ecosystem controlling the middle layer to the American Way of Healthcare, the one infinitely-resourced Mark Cuban wants to “fuck up” but can’t, at least not using his current cognitive pattern, the set of words, ideas and concepts informing his ambition. He’s misunderstanding the nature of the market, the same multi-billion-dollar misread that is plaguing infinitely-resourced Amazon, which is the same multi-billion-dollar misread the shaping the fragmented and flailing world of “digital” (about 80% of digital health solutions fail from pilot to scale).
Markets aren’t about operational efficiency and technical potential. They’re about power and control.
And the Big PBM market has power and control in spades, particularly when it comes to ‘market access’ deal-making with the pharmaceutical industry. It has leverage over the economics, thus it defines the context for competition. Big PBMs collectively control (they would say “manage”) about 80 percent of the $600 billion a year in drug spend in the United States. Which by any measure of logic a fifth-grader would understand is, like, big or something. That’s more than the entire GDP of today’s newsmakers Israel ($580 billion), the United Arab Emirates ($550 billion) and Vietnam ($490 billion).
It can help to understand PBMs not as a single market, sitting alone and operating in isolation, but more like a ‘system of markets’, with Big PBM + Big EBC interoperating as a single, multicellular organism.
The organism moves like a centipede, in a wave-like motion of hundreds of legs, a coordinated gait in a staggered sequence that lets it move quickly and efficiently over various surfaces. Like offshoring Medicaid claims processing to India, which violates state contracts requiring work to be done in the United States (Bloomberg Law this week: Medicaid Middleman Ships Jobs, Tech to India Despite State Rules); or simply repositioning yourself as a “GPO” instead of a PBM.
The Big PBM + Big EBC ecosystem has a combined operating income touching $40 billion a year (around $18 billion annually for ESI + Optum + CVS Caremark; around $19 billion annually for Aon + WTW + MMC). The income flows from many sources. But the Main Drift is the capacity to “make better decisions” about drug spend-and-trend using a mind-bending form of mathematical gymnastics around historical claims data, gathered and aggregated and analyzed over decades.
This expertise is intentionally arcane and intentionally exclusive. As a knowledge system, it floats somewhere in the borderlands between fact and fiction. It sits on kinetic sand, always directionally correct, always subject to revision depending on the people in the room.
This analysis energizes an industrial complex where big money is made performing administrative services and negotiating rebates from drug manufacturers, the rebate checks themselves becoming almost like a heroin addiction to the human resources/employee benefit teams. Note to Mark Cuban, the problem you’re really trying to solve is not transparency, a technical thing, but addiction, a physical and psychological thing. The ecosystem also monetizes a zoo of vendor/data/portal fees, charging customers for access to the knowledge system customers have created, but which the PBMs own.
And people are pissed off, at scale.
Here’s something that should keep every Big PBM leader (and every Big Drug Distributer, for that matter) up at night: The nascent straight-to-consumer drug industry.
This isn’t just a story about the Trump administration meeting with Walmart and Amazon as part of an effort to help Americans get their medicines more directly from companies that make them. Or even the launch of LillyDirect and NovoCare Pharmacy to cohere and manage the mushrooming value from producing cardiometabolic health. It’s a story about an epistemic unraveling, the death of one knowledge system and the birth of something different, a future built not on information and more data, but on right-relation between markets, strategic fit to a world revealing that it “works” with weird rules we haven’t been trained on.
Servicing Narrative Debt
The United States spends approximately $15,000 per person on healthcare in 2023, which was a 7.0% increase from 2022. This included a total national health investment of about $5 trillion, a world-beating “spend and trend” line that’s been simultaneously rising while under-performing every year in the thing that matters: the production of outcomes and access to innovation.
You can’t argue with the operational intent, the ‘propositional knowledge’ offered by Big PBMs.
Controlling drug “spend and trend” and, by extension, the “cost” of healthcare is important. But at a strategy level, as the basis for competition, the objective on the roadmap to “transformation” and “patient centricity” and population health management in the spirit of capitalism, the investment thesis hasn’t, isn’t and won’t ever deliver better EBITDA performance for the United States because it’s trying to service narrative debt.
“Cost” isn’t the problem.
Nicholas Michaelsen in his his Substack, Rethinking Value in a Post-Propositional Economy:
“For many of us, especially those trained to navigate the world through abstract thought, the crisis isn’t just economic, it’s existential. We weren’t just taught what to know; we were taught how to be through knowing. Our value (internally and societally), our confidence, our sense of self-worth were wired into our ability to process, analyze, and articulate. Now, as AI outpaces us at the very game we were trained to play, a deeper question emerges: What exactly was the game?
It’s not that propositional knowledge is bad, it is extremely important. It’s that we made it the only valid form of knowing, and built an entire society around it being the only valued way of knowing. This form of knowledge gave us modern science, global trade, and technological scale. But it also produced a monoculture of mind, where to be valuable (both in economic and social sense) was to be smart, and to be smart was to know about things and have the credentials to show for it.”
To understand what’s dying, we have to name what lived. And that means looking squarely at the architecture beneath our collective sense-making, an entire ecology of sense-making and storylines of value.
The Big PBM + Big EBC system is crumbling under its own weight.
What comes next won’t flow from the old knowledge system. And what’s emerging doesn’t offer total control. It asks for something else: relationship. Participation. Presence. Attunement. Not mastery over the world, but communion and collaboration with it.
The difference between the companies that thrive, like Nvidia or Eli Lilly or Capital Rx, and those that, like Tesla or WPP or Walgreens, commit brandicide? They understand the game being played. They see the pattern.
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/ jgs
John G. Singer is Executive Director of Blue Spoon, the global leader in positioning strategy at a system level. Blue Spoon specializes in constructing new industry narratives.