Managed Care Update: Amazon, Berkshire, JPMorgan Deal Could Completely Change Health Care

An unexpected press release from a coalition of three corporate giants—Amazon, Berkshire Hathaway, and JPMorgan Chase—announced that they would be “partnering on ways to address health care,” by forming an independent company.

The press release was vague, but highlighted that the companies are combining their forces to find ways to reduce health care costs for their employees. They also emphasized that the partnership would “free from profit-making incentives and constraints,” a potential shot at the numerous profit-based entities that make up a large portion of the current US health care system.

“The health care system is complex, and we enter into this challenge open-eyed about the degree of difficulty,” Jeff Bezos, Amazon founder and CEO, said in the press release. “Hard as it might be, reducing health care’s burden on the economy while improving outcomes for employees and their families would be worth the effort. Success is going to require talented experts, a beginner’s mind, and a long-term orientation.”

According to Michael Rea, PharmD, founder and CEO of RX Savings Solutions, the size of the three corporations at the center of this deal emphasizes how huge the problems facing the US health care system are.

“When you have arguably the three biggest businesses (of their respective industries) teaming up to solve a problem in an industry they’re not currently in, you know how big of a problem this is,” he told First Report Managed Care. “Having this type of diversification is great news from a market perspective. As the inelastic market of pharmaceuticals continues to be stretched to new levels, consumers and payers are looking for efficiency and cost savings. These entities joining forces is a true sign of the times.”

S Russell Spjut, PharmD, formulary management pharmacist, at MagellanRx Management, and a First Report Managed Care Editorial Advisory Board member, agreed that this announcement is a positive sign of the shift to come. 

“This is a really interesting and intriguing announcement,” he said. “Many of us have bemoaned the continually rising costs of health care particularly that they are rising much faster than inflation. I for one have been looking for and hoping for ways to see this upward spiral be brought under control. This announcement may just be the kick the system needs to have beneficial changes made.”

We also spoke with David Marcus, director of employee benefits for the National Railway Labor Conference, who has a unique perspective on this issue—given that Berkshire Hathaway Inc owns Burlington Northern Santa Fe Corp and stakes in other smaller railway companies in the United States. He explained that this deal will likely focus on ways to connect employees with efficient health care services through technology innovation. 

“It is hard to predict how it will develop,” Mr Marcus said. “At the very least, it appears that the joint venture will initially focus on research and development of innovative ways of delivering health care to employees. For instance, the press release noted the need to develop technology to improve transparency in health care. Once that has been achieved, the joint venture would be in a great position to disrupt existing consumer-driven and value-based health care models.”

Mr Marcus elaborated that using pricing transparency and developing new tools to cut out the middlemen in the health industry, could significantly impact managed care.

“Initially, the joint venture would likely focus on developing innovative ways to improve the delivery of health care,” he said. “This would involve developing technology that helps employees make well-considered, consumer-based health care decisions. One of the difficulties with consumer-driven and value-based health care models is that there simply is not enough information out there for consumers (here, employees of the three companies) to make informed decisions. Once technology is developed and transparency has been achieved, I see quite a bit of disruption in the current health care model.”

But should payers be concerned about this mega-joint venture? According to Mr Marcus, Amazon will likely purchase a payer to accelerate the aforementioned disruptions. 

“We know that Amazon is already making efforts to enter the health care arena and may have already considered contracting or purchasing a payer,” he said. “Of the three companies in the joint venture, Amazon’s activities will likely pave the road for the joint venture.”

Dr Spjut disagreed, noting that these three companies may just be large enough, and tenacious enough, to take on health care without purchasing or partnering with payers.

“Looking at those involved in this announcement, I wouldn’t be surprised if they attempt to come up with their own solution rather than partnering with existing players,” Dr Spjut said. “Bezos and Buffett have found success in their careers by taking control and doing their own thing and I would guess they will want to apply that formula here as well.”

Dr Spjut added that while the announcement from the companies downplayed the profit-motives of a deal like this, the venture will still have to remain cost-neutral for the company to be successful. 

“I’m not sure if they will be able to pull this off from a financial standpoint, but I am interested to see what they can come up with,” he said. “Amazon ran for years without making a profit though, so maybe this group will be ok with the same model of running in the red for years before making any sort of profit in order to disrupt the industry. They are quoted in the article as saying that this is free from profit making constraints, but it will still need to be financially viable in the long term.”

Mr Marcus concluded that all signs point to this venture having significant impacts on the health care industry.

“This is not the only time Amazon has made waves in the health care world,” he said. “It also recently indicated that it could attempt to enter into the pharmacy benefit management industry, in which it could leverage its incredible supply chain network to reduce costs. This joint venture, depending on what it develops, could accelerate Amazon’s push to become a payer.”

Dr Spjut agreed that if this venture succeeds, its success will set off a ripple of changes that totally recalibrate the US commercial health care system. 

“If they can find a way to get this going and hang on for a while, I could see them being able to force other players in this space to become leaner, more efficient, and drive costs down,” he said.

Dr Rea also concluded that this deal will likely change health care for the better. 

“This coalition… is proof the status quo won’t suffice in the future,” Dr Rea said. 

TEMPERED EXPECTATIONS

However, recently at the PBMI 2018 Annual Meeting, George Hill, managing director at RBC Capital Markets, cast doubt on the ability for this deal to significantly impact the markets. During his presentation, he initially called into question the part of this deal that emphasizes that the company will be “free from profit-making constraints.”

“So, wait—now Amazon, JPMorgan, and Berkshire Hathaway are free from profit-making incentives and constraints?” Mr Hill said. “So, they want to be…Blue Cross Blue Sheild—is that the goal here?”

Mr Hill downplayed this announcement, noting that the vague wording and emphasis on employee-health in the press release was reminiscent of other similar failed efforts made in the past. 

“My first thought after reading this was, I’d like to point them down the path of all the other employer-sponsored initiatives run by individual employers, that were going to try to control health care costs, that went absolutely nowhere,” he said. 

Mr Hill also emphasized that a deal like this would create numerous conflicts of interest that would ultimately impede the company’s goals.

“This deal is rife with conflicts,” he said. “Can anyone imagine Google, and Microsoft buying healt care from Amazon? Can you imagine Goldman Sachs, Morgan Stanley, of Royal Bank of Canada buying health care from JPMorgan? I think not.”

He noted that this deal will ultimately fail when other profit-making drivers ultimately influence the parent-companies to abandon the company’s goals of lowering health care costs.

“The rubber will really hit the road when Unitedhealthcare or CVS… want to steer a multi-hundred million dollar advisory fee away from JPMorgan—all so that JPMorgan can save a couple of grand on its health care.”

Mr Hill concluded that the announcement of this deal was a good thing for investors in the industry, indicating that Amazon may not be as serious of a threat as the media is making it out to be.

“To me this announcement was the big sigh of relief,” he said. “That this was just going to be another employer-sponsored initiative that probably goes nowhere.” 

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