There has been a thunderous response to the new partnership announced by Amazon, Berkshire Hathaway and JPMorgan Chase, but is this response deserved? When Amazon and its partners announced that they would create a new company to provide health care to U.S. workers at their companies, the stock prices of many major pharmaceutical and health care companies fell dramatically. Pharmacy manager Express Scripts Holding Co. experienced an 11 percent drop in share prices, while CVS and Anthem saw a 6.4 and 6.5 percent devaluation respectively.
Shareholders are obviously afraid that Amazon could do to health care what it has done to retail—completely overtake and reshape the industry. Although the initial announcement was short on details, it did paint the broad outline of the new organization “that is free from profit-making incentives and constraints.” The new company will focus on technological innovation that will make health care cheaper and more accessible.
This is a sobering indictment of the American health care system which currently consumes almost 19.7 percent of the nation’s economic output while producing patient outcomes that trail behind those of other leading developed nations. With health care spending projected to grow at a rate of 5.5 percent annually through 2026, outside intervention from private companies may be the only hope to keep the economy from tipping over into unsustainability.
If there is a private initiative that could produce a breakthrough in the health care field, it could very well come from a partnership of these industry giants well-recognized for their ability to identify weaknesses and innovate solutions. The three companies currently spend almost $7.5 billion annually on health care for their combined 950,000 employees. If they project an outcome that cut a third from this expenditure, the three companies could be willing to invest billions to secure success.
Given Amazon’s technological skills in distributing services and products as well as the enormous financial resources of Berkshire Hathaway ($702 billion) and JPMorgan Chase ($2.5 trillion), it would be foolish to bet against this blockbuster collaboration, but there are some systemic and legal challenges that must be overcome. The new initiative will have to break free from the regulatory shackles that have previously stifled innovation in the health care sector. It will also need to secure bipartisan political support to sidestep any thorny legal issues.
If these hurdles are overcome, then this new company will likely focus on some key areas that require re-engineering. It is quite likely that Amazon will bring to bear its logistical expertise to design a more customer-friendly pharmaceutical supply chain. The new company could also apply this expertise to creating a more transparent system that readily shares consumer information, thereby improving access and promoting care delivery.
As business leaders in their respective fields, all the company heads could help forge important relationships with other organizations that could benefit this project. Along with financial incentives, there could be a quid pro quo for any innovations ultimately produced that could relieve the burden of health care costs.
Dr. Rober Moghim, M.D. - CEO/Founder Onyx M.D.
Disclaimer: The views expressed in this article are the personal views of Robert Moghim, M.D. and do not necessarily represent and are not intended to represent the views of the company or its employees.