If You Build It ... Haven’s Demise Foretold
Recently the vaunted Haven joint venture created by Amazon, Berkshire Hathaway and JPMorgan Chase announced it was shutting down as reported by Forbes and others.
So could Haven’s downfall have been predicted? We spoke with Regina Herzlinger, the distinguished tenured professor at the Harvard Business School, who has been called the "godmother of consumer-driven health care." In order to understand the causes of Haven’s failure, she delved in core principles of healthcare businesses. She previously noted that “successful healthcare innovations can have only one of three purposes: cutting costs, facing consumers, or commercializing technology.” In Professor Herzlinger’s analysis Haven tried to do two of the three: cut costs and help consumers. “Worthy goals, but they cannot be done simultaneously,” she explained.
The Haven venture was launched with much fanfare three years ago. Living legends of corporate America who had built fortunes by leading or personally creating fabulously successful companies came together with towering ambitions. Their goals were both somewhat outrageous and also desperately needed. These business leaders had become successful by overturning expectations, taking on major challenges, applying great judgement and the relentless pursuit of quality and customer (or shareholder) satisfaction.
Haven was supposed to be a joint effort to “cure healthcare.” Many of us were truly rooting for their success. After years of escalating costs and miserable quality there was going to be an effort by industry’s titans to dismantle some of healthcare’s paralyzing service bureaucracies and mindlessly frustrating fragmentation.
But there were signs of trouble even at the beginning. The first press release in January 2018 was shortly after JP Morgan’s huge annual investor conference in San Francisco with decidedly mixed results. There was an immediate reaction as conversations turned to how the three firms’ global reach along with Amazon’s capabilities could really potentially disrupt healthcare and drive down costs. Yet as the tech disruptors cheered, news hit capital markets like a shock wave eroding “billions of dollars of value” as stock prices of bellwether health insurance carriers dropped as well as those of pharmacy-benefit managers, pharmacy chains and drug distributors.
Obviously two of the venture partners could not be perceived as destroying market value. They had tried to make the announcement “intentionally vague” as noted in a Forbes article and attempted to manage investor heartburn but JP Morgan CEO “Jamie Dimon had to personally calm jittery clients in their healthcare investment-banking segment.”
After the big splash, the enterprise remained stealthy but rumors trickled out. Berkshire’s Warren Buffet would be quoted that healthcare is the ‘tapeworm’ of American industry, and at one point UnitedHealth Group launched a lawsuit that was eventually dismissed alleging breach of contract by a former executive.
Gawande (Photo by Priyanka Parashar/Mint via Getty Images)
HINDUSTAN TIMES VIA GETTY IMAGES
Although there was a bit of skepticism, bringing in the esteemed Dr. Atul Gawande was generally seen as a smart move. The Rhodes scholar, MacArthur winner and Harvard professor is also a practicing surgeon and founder of his own business-like Ariadne Labs research institute and even had a stint assisting a previous president-elect with healthcare reform. Gawande eventually left to focus on the pandemic and became part of the Biden-Harris Transition Covid-19 Advisory Board.
Herzlinger says that some of Haven’s avoidable mistakes were around managing expectations versus pursing tangible goals. “All too many innovators think ‘if you build it, they will come,’ falling in love with their innovation and ignore the pillars of good business practice,” she says, because “in most cases, ‘if you build it, they will not come.”
“They did early public relations rather than running small beta projects and then going public with success stories from prototypes,” Herzlinger adds. Ulterior motives may have been at play. “They set themselves up for an embarrassing fall, perhaps driven by Dimon’s need to show he could cure healthcare before the next election.” she surmised.
Herzlinger’s new book discusses the differing keys to success of types of health care enterprises. Innovating in Healthcare: Creating Breakthrough Services, Products, and Business Models makes the complexities of healthcare companies accessible by using a three pillar framework. The book examines what works or fails by considering the type of innovation, strategic alignment of multiple forces, and elements of various business models.
The three pillar model is useful to understand what happened at Haven. Herzlinger says, “Cost-cutting ventures need to focus on finance and control while innovators of consumer-facing companies must be great at retail.” She provides examples of successful cost cutters such as Adelade, a physician-led accountable care organization (ACO) or Health Care Global, a hub and spoke Indian cancer provider. A superb retail strategy can be seen with Prevent Senior, a mid-price vertically integrated system in Brazil that offers participants social events such as teas, parties, vacations in company owned hotel all in an effort “to combat the loneliness that brings all too many seniors into the emergency room,” she says.
Paying attention to business pillars could have helped avoid the eventual demise of Haven. Herzlinger says the company suffered from a “lack of clarity.” At no point could anyone easily identify “this is what it does or makes.” Herzlinger’s first pillar stresses that successful companies must have a clear purpose that leadership articulates and employees rally around. For instance, an enterprise with clarity of vision is Brainlab, a privately held medical technology company headquartered in Munich, that develops hardware and software for radiosurgery, image guided surgery technologies for neurosurgery. The CEO is able to “walk the talk” in Herzlinger’s words who is “idolized by employees for being both the brilliant strategist as well as an extraordinary surgical imaging programmer.”
From the very beginning Haven was suspiciously silent on its plans after publicizing its bold vision concepts. Haven may have been fatally crippled by founders pulling the enterprise in different directions as each pursued their own mission. JP Morgan and Berkshire Hathaway’s focus was likely on investor value while Amazon is the megastar consumer retailer that now sells pharmaceuticals after acquiring PillPack. Additionally, “turnover by seasoned employees indicated dissatisfaction with management,” says Herzlinger.
Careful observers saw increased backpedaling coming from Haven. The founding partners had started to deflect blame over a year ago with statements such as healthcare is “ungodly difficult.” Their vision shrank as they then said it was an effort to contain their own employee costs, they were “just beginning,” and “there was “no guarantee of success.”
Even Gawande seems to have acknowledged that Haven was hobbled by strategic contradictions. In a recent interview he said that healthcare enterprises can either influence patient behavior or they can try to change providers actions using “incentives that drive the ship,” but not both. He says that change in healthcare comes from a combination of access to patients and clinicians, as well as financing and data. Few “own all the pieces” and those that do “end up being in a narrow space where it’s hard to scale.”
Although it is heartbreaking to witness the expectations crumble like so many ambitious reforms over the years, there are learnings here. Concerningly this experience may again throw cold water on business leaders’ attempts to help fix the health system. In addition to paying attention to lessons of the past, those trying to build a great healthcare company should pay attention to core principles, keep strategic focus and make sure forces are aligned in the right direction.