Amazon, Berkshire, JPMorgan to form company to cut US healthcare costs

NEW YORK: Amazon.com Inc, Berkshire Hathaway Inc and JPMorgan Chase & Co said on Tuesday they will form a company to cut health costs for hundreds of thousands of their employees, setting up a major challenge to an inefficient US healthcare system.
The move by three of the best-known US business leaders — Amazon’s Jeff Bezos, Berkshire’s Warren Buffett and JPMorgan’s Jamie Dimon — would take on the world’s most expensive healthcare system, whose mounting costs have hurt corporate profit.
Shares of US healthcare companies fell across the board. The new, not-for-profit venture will initially focus on technology for “simplified, high-quality and transparent healthcare” for their more than 500,000 US employees, the companies said.
They did not elaborate on their strategy, but said they are searching for a chief executive officer.
Healthcare industry experts say the new entity could eventually negotiate directly with drugmakers, doctors and hospitals and use their vast databases to get a better handle on the costs of those services.
That could undercut the industry’s “middlemen,” from health insurers to pharmacies and benefits managers.
“The ballooning costs of healthcare act as a hungry tapeworm on the American economy,” said Berkshire Hathaway Chairman and CEO Buffett. “Our group does not come to this problem with answers. But we also do not accept it as inevitable.” US healthcare spending has been increasing annually faster than inflation, and in 2017 accounted for 18 per cent of the economy.
Corporations sponsor health benefits for more than 160 million Americans.
“There are a lot of companies, or arguably almost all companies, in healthcare that benefit from cost inflation running as high as it has been for many years,” ISI Evercore analyst Michael Newshal said.” “And if there is pressure to lower that, that can flow throughout the entire system.”
The new initiative grew out of conversations that Bezos, Buffett and Dimon have held over the years and gained momentum in recent months, according to a person involved with the consortium but who was not authorized to speak publicly.
The three CEOs plan for their companies to be the only clients of the joint venture, the person said.
However, they intend to share the strategies and technology they ultimately develop to reduce costs for the economy and the government.
Traditional healthcare players have tried to reduce costs without losing their profit margins.
Most recently, pharmacy network CVS Health Corp reached a $69 billion deal to buy insurer Aetna Inc, arguing their combination could save money for the nation’s employers.
Investors in the sector expect Amazon will become a major disruptor of healthcare, just as it has done in the retail industry, fuelled by media reports in recent months that the company was considering entering the pharmacy business.
Teaming up with JPMorgan, the biggest US bank, and Berkshire, the third-largest public company globally and an insurance provider, offers new opportunities to shake up the industry, analysts said.
For example, JPMorgan could help shape new payment models for consumers and providers, and provide cost data.
CEO Dimon has for years expressed concerns about rising healthcare costs.
The bank has said it spent $1.25 billion on US medical benefits last year, 2 per cent of company-wide expenses. — Reuters