The January 30 announcement that Amazon was joining forces with Berkshire Hathaway and JPMorgan Chase to create a nonprofit health company for their employees’ care generated a flurry of speculation about the potential impact to the country’s health care system. Although the announcement was quite vague beyond the expressed goal of lowering the cost of care, the move has ignited questioning and speculation as to whether whatever model of care comes from this partnership could spur the transformation of health care as Americans know it.
And that appears to be exactly the aim. In a press release announcing the partnership, Berkshire Hathaway CEO Warren Buffet stated, “The ballooning costs of health care 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.”
Jeff Bezos, founder and CEO of Amazon, acknowledged that the health care system is complex. He stated, “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.”
Beyond these remarks, the only details the companies gave was that their new health care company’s initial focus “will be on technology solutions that will provide U.S. employees and their families with simplified, high-quality and transparent health care at a reasonable cost.”
The discussion surrounding whether or not technology companies like Amazon could disrupt the health care industry is not a new one, according to Paul Hughes-Cromwick, co-director of the Center for Sustainable Health Spending at the Ann Arbor-based nonprofit health system research organization, the Altarum Institute. But the idea of a company with incredible technological sophistication partnering with two other firms to leverage their collective market clout is new. And, according to Hughes-Cromwick, it could have impacts beyond the employees of those firms.
Brendan LaCerda, assistant director and economist at Moody’s Analytics, pointed out that the core power of the partnership between Amazon, JPMorgan Chase and Berkshire Hathaway is bargaining power. “Combined, they have like 1.2 million employees worldwide. It’s a well-documented fact in the health care research that the larger your company is, the better pricing you get on premiums for your employees,” he said. “A part of me thought: is this some new model where . . . companies decided to band together to increase their bargaining power so they could negotiate better prices with the insurers? It’s a legitimate possibility.”
If this is the tactic the firms intend to take to lower health care costs, they would likely bump into the “classic problem” of health insurance – that if one of the companies has a healthier population, it would be better off securing health insurance rates on its own, LaCerda explained.
“You hear people say, ‘well . . . they only have a small number of employees relative to the total U.S. population. They can only do so much with that,’” Hughes-Cromwick said. “But what if they were to use their overall market clout to put pressure?” He noted that, combined, the market reach of these three firms extends to “pretty much every company there is.”
Both analysts agreed that Amazon, as a highly sophisticated technology-logistics company, could have significant impact on the nation’s health care industry by creating price transparency.
“Every time I give a talk about health care, I always bring up the fact that one of the biggest problems in the health care industry has to do with price transparency,” LaCerda told the Business Journal. “No one knows what the price of anything actually is until after you get back from the hospital and you get a bill in the mail a month later that says you owe this much. . . . And prices vary wildly even for the same exact service.”
LaCerda continued, “Amazon has this logistics network. They have this consumer-friendly website. If they are going to lower cost by bringing some efficiency, the most sort of obvious place would be in increasing price transparency where people could comparison-shop drug prices or medical device prices. And that would increase competition and presumably lower price for consumers.”
Pharmaceuticals are highly regulated, so it would take time for Amazon to break into this field, LaCerda noted.
If Amazon chose to get into the sale of pharmaceuticals, “It would be huge,” Hughes-Cromwick said. “I imagine this situation where there is a big box, ‘Amazon Prime Pharmacy.’ . . . . Just imagine that you have one of these in Ann Arbor, and every single person goes there to get their drugs. Or even better, they have a fleet of deliverers who bring the drugs to people who are infirm,” he speculated. “I think that would be hugely efficient.”
Principally, Amazon could cut costs by making the supply chain of pharmaceuticals and medical goods more transparent and efficient, Hughes-Cromwick explained. “That is the kind of thing that Amazon could do in its sleep if they really wanted to,” he said.
Using Tech To Lower Costs
If you’ve been watching the Winter Olympics, you might have seen an ad spot by Apple advertising its Apple Watch. In the commercial, a series of Apple Watch wearers describe how the watch has helped them monitor their health vitals and, in some cases, even saved their lives. The company has secured a number of patents to turn its products into medical monitoring devices.
According to Hughes-Cromwick, several efforts have been made by Silicon Valley companies in years past to turn wearables into health monitoring devices. Without a plan on how to leverage that technology, these efforts amounted to putting the cart before the horse, he argued. But the partnership between Amazon, Berkshire and JPMorgan could change that.
“Imagine these three companies, starting with their own employees, rationalize their benefit plans to take care of the people who are healthy and to keep the people who don’t have health needs healthy,” he said. The companies could create incentives and penalties for employees in order to motivate them to continue focusing on their health, and they could do it through the use of wearable technology, he explained.
“In some sense, yeah, the Apple Watch could become a form of preventative medicine,” LaCerda said. “That early intervention saves money. So it seems like there is this role that wearable technology, smart devices, could provide preventative information to people and that would help lower . . . the amount of money individuals are saving on health care.”
With the number of employees held between firms like Amazon, Berkshire and JPMorgan Chase, it is possible that the firms could use their combined employment base as a massive pilot program for health management technologies, Hughes-Cromwick noted.