Amazon and Berkshire Hathaway partner to take on healthcare

Dive Brief:

• Amazon, Warren Buffet’s Berkshire Hathaway and JPMorgan Chase & Co. announced on Tuesday that they are partnering on ways to address healthcare for their U.S. employees, with the aim of improving employee satisfaction and reducing costs, according to a press release.
• The three companies are forming an independent company free from profit-making incentives and constraints, according to their press release. The 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.”
• The effort is in its early planning stages, with the company’s formation jointly spearheaded by Todd Combs, an investment officer of Berkshire Hathaway; Marvelle Sullivan Berchtold, a managing director of JPMorgan Chase; and Beth Galetti, a senior vice president at Amazon. The longer-term management team, headquarters location and other key operational details will be announced “in due course.”

Dive Insight:

If there’s a sector in the United States that is ripe for disruption it’s healthcare. The complexity, opacity and expense in the private side of the system have vexed employers, healthcare providers and consumers for decades. Berkshire Hathaway Chairman and CEO Warren Buffett in a statement on Tuesday noted that “the ballooning costs of healthcare act as a hungry tapeworm on the American economy.”

The leaders of the three companies admitted that their project will therefore be massive. “The healthcare system is complex, and we enter into this challenge open-eyed about the degree of difficulty,” Amazon CEO Jeff Bezos said in a statement.

But a sector that is ripe for disruption is also ripe for Amazon’s consideration, according to Matt Sargent, senior vice president of retail for consulting firm Magid. The e-commerce giant has for years played in other sectors – consumer goods and other retail, plus cloud services, shipping and advertising – with just two major spending areas left: grocery and healthcare. The company has recently tackled grocery in a major way with the takeover of Whole Foods so now that just leaves healthcare, he said.

“They look at big pockets of spending – where you spend most of your money,” he said, noting that the complexities of the space mean that the effort is likely a years-long, if not decades-long, project.

But it’s a deserving one, Bezos said, also emphasizing the long view. “Hard as it might be, reducing healthcare’s burden on the economy while improving outcomes for employees and their families would be worth the effort,” he said. “Success is going to require talented experts, a beginner’s mind and a long-term orientation.”

The idea of a retailer, business group and bank entering the space brings hope of some rationalization of a consumer space that seems mired in escalating costs with a troubling lack of transparency, but it also brings up a host of potential privacy issues that could likewise be troubling, Sargent noted. When it comes to retail, consumers connected to Amazon via their health insurance could have a naturally smooth path to purchase when it comes to goods of all sorts, from fitness trackers to health foods and vitamins. “If you’re now, say, Target and you’re selling Fitbits, you’re at a competitive disadvantage.”

The news was bad for CVS Health, too, which saw shares fall as word spread Tuesday morning. CVS has steadily moved to become at least as much a healthcare provider as a retailer, starting with ceasing the sale of tobacco four years ago and most recently with its purchase last month of health insurer Aetna for $69 billion. Other retailers should be wary, too, according to Moody’s Investors Service, which noted the partners’ deep pockets.

“Although very few details are available at this time, the announcement today that Amazon, JP Morgan and Berkshire will form a joint venture to reduce healthcare costs for employees could be disruptive and create further competitive pressure on CVS, Walgreens and Pharmacy Benefit Managers, as there hasn’t been a new competitor with this magnitude of resources in the employee healthcare space for a very long time,” Moody’s Vice President Mickey Chadha said in an email to Retail Dive.

The still-to-be-blessed merger of CVS and Aetna could prove to be an advantage in the emerging new scenario, however, he also said.

“Considering the regulatory burden around every aspect of healthcare, any new entrant in the space is at a huge disadvantage,” he said. “In light of today’s announcement, the potential merger of CVS and Aetna is even more compelling, as a more coordinated approach to medical care is necessary to lower the overall healthcare costs for consumers.”

View the article in full on Retail Dive.

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