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Can Amazon, Berkshire Hathaway, and JP Morgan really upend the healthcare industry?
It isn’t often that a single press release can bully around dozens of stock prices. Then again, it also isn’t often that you find Jamie Dimon, Jeff Bezos, and Warren Buffet all quoted in a single press release.
Buffett called “the ballooning costs of healthcare” a “tapeworm on the American economy,” in today's dispatch. The release announced that his firm, Berkshire Hathaway, was linking arms with banking giant JP Morgan Chase and online retail king Amazon to start a healthcare company.
Quotes from both Bezos and Dimon indicate that the new program will be set up to serve the employees of the 3 companies. The release says the new company will be “free from profit-making incentives and constraints,” and that its initial focus 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.”
While the press release might divulge little, stock market action revealed that investors aren’t taking the news lightly. Share prices for traditional health insurance companies fell sharply in the hours following the release, and have only slightly recovered since.
The trio pose a legitimate threat to insurers, according to Adam Fawer, because they are capable of real innovation. Fawer is the Chief Operating Officer and Chief Financial Officer of Noom Coach, a tech company that makes chronic condition management applications and often works with insurers.
“Insurance companies aren’t particularly good at innovation, they pay lip service to innovation and have ‘innovation groups,’ on the side. Amazon is an innovation company,” he told Healthcare Analytics News™. Insurance companies don’t have much incentive to lower costs, Fawer said, but were an employer to become its employees’ insurance company—and perhaps even more—it would have good reason to keep costs low while maintaining care quality.
Amazon has had numerous flirtations with healthcare, including a secret “1492” or “a1.492” program and an on-again-off-again effort to distribute pharmaceuticals. The company also posted a job opening for a HIPAA compliance officer earlier this month, which has since been removed.
It’s unknown if the newly-announced company will incorporate some or all of those previous initiatives.
In Fawer’s eyes, the collaboration can play to the strengths of the 3 companies. There’s a lot of room for technology in healthcare, but there are also a lot of regulations that limit its use. As powerful as Amazon may be, JP Morgan and Berkshire Hathaway may have more sway when it comes to getting policy to reflect progress, he said.
And even if the mysterious new company’s scope is only the US staff of those 3 companies, it’s still a sizable petri dish: Amazon alone has hundreds of thousands of employees in the United States, with both JP Morgan Chase and Berkshire Hathaway adding tens of thousands more. When adding in the number of companies that Berkshire Hathaway owns outright—GEICO, Dairy Queen, and Long & Foster, among others—the total head count climbs.
“The result could be an overnight insurance company with easily more than 1 million members with the potential to scale rapidly to others,” Dr. David Friend said.
Friend, the Chief Transformation Officer at the BDO Center for Healthcare Excellence & Innovation, thinks the 3 companies really do have the power to change healthcare if they combine Amazon’s huge analytics capabilities, JP Morgan’s understanding of financial behaviors, and Berkshire Hathaway’s sheer wealth (the latter’s experience with insurance, albeit not health insurance, can’t hurt).
“Amazon is probably the most customer-friendly company in the world, and healthcare is probably the least customer-friendly industry,” he said. “The entire system needs to rethink what it’s going to do now, and how it’s going to think going forward.”