Amazon, Berkshire Hathaway, and JPMorgan Chase Collaboration Points to Disruption in Healthcare Industry
It’s the business equivalent of a superhero movie when Warren Buffett (The Oracle of Omaha), Jeff Bezos (Amazon), and Jamie Dimon (JPMorgan Chase) unite to form a new healthcare company “free from profit-making incentives and constraints.”
While they’re not (yet) banding together to disrupt the status quo of U.S. healthcare, Berkshire Hathaway, Amazon, and JPMorgan’s purposefully vague announcement say the three companies will collaborate to create technology-based healthcare solutions for their own employees (1.1 million, plus dependents) initially.
But this is not going to be another buying club or Business Group on Health; these business titans are not aiming for quick or marginal change, and that’s why the news should make the major insurers and pharma nervous.
Ultimately, the collaboration is likely to use the weight of its wealth and acumen, as well as Amazon’s technological capacity, to supplant existing insurers and pharmacy benefit managers, carve away at the layers of middlemen in pharma purchasing and supply, act as a brake on unjustified pharmacy price increases, employ clinical protocols and treatment algorithms more effectively, and maximize technology-assisted home-based health.
Consider this line from the release: "The ballooning costs of healthcare act as a hungry tapeworm on the American economy. Our group does not come to this problem with answers. But we also do not accept it as inevitable. Rather, we share the belief that putting our collective resources behind the country's best talent can, in time, check the rise in health costs while concurrently enhancing patient satisfaction and outcomes," said Berkshire Hathaway Chairman and CEO, Warren Buffett.
As much as I admire Buffett’s comparing healthcare costs to a parasite, the operative words suggest the power of bringing Bezos (tech), Buffett (investors), and Dimon (banking) to acquire and combine healthcare companies and technologies in ways that could challenge industry heavyweights such as UnitedHealth Group, and CVS. The new company’s team includes one of Buffet’s more trusted stock pickers, Todd Combs, and JPMorgan’s Marvelle Sullivan Berchtold, a former M&A executive with Novartis.
Amazon has been looking for ways to penetrate the pharmacy space for several years and has - according to a report from the investment firm Leerink - pulled together a team of 30 to 40 people to work on Amazon’s future entry into the pharmacy space. It has pharmacy licenses in a dozen states and could acquire a PBM such as Express Scripts with no trouble. It has reportedly held discussions with at least two generic drug manufacturers and has hired experts in medical privacy, pharmacy, and healthcare delivery models.
The new venture with Berkshire and JPMorgan may not be tied to that effort, but it’s probably been informed by what Bezos and his team have learned about the pharma industry and its Byzantine system of pricing and supply and the insurance industry and the perverse incentives that make American healthcare the most expensive in the world.
If all Amazon wanted to do was sell and distribute cash-pay generics and medical supplies, it would be doing so already. But it might envision a future in which Amazon could deliver a medical patient’s prescriptions, medical supplies, and monitoring devices to the home within hours of the patient’s discharge. Alexa would be able to answer questions, remind the patient to take prescriptions, or dial a telehealth nurse. Amazon could also deliver an approved diet to the patient’s door.
Now before we cue the rousing John Williams score, this collaboration is a long-term project. And the healthcare industry is already at work building new payer-provider-supplier verticals such as UnitedHealth’s developing integration with its Optum health providers and the proposed merger of Aetna and CVS. On the pharma side, a consortium of hospitals is planning to own a generics manufacturer.
These three high-profile capitalists, each of whom considers the country’s current healthcare system a growing hindrance to U.S. business, also have the political influence to move the national debate over healthcare. Buffett has said that government-funded healthcare for all would be the best and least costly option.
If the shortcomings and excessive costs of the American healthcare system can be fixed by some of the richest, savviest, innovative capitalists in the country, this new threesome is one to watch.
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