JPMorgan Chase, Berkshire Hathaway and Amazon have announced that they are forming a company whose goal will be to reduce the cost of healthcare for their employees. The move was seen as posing a challenge to the inefficient healthcare system of the United States which has seen rising costs and has consequently hurt profits of corporations. The announcement led to shares of healthcare firms falling across the board.
Initially the focus of the not-for-profit venture will be on technology with the aim of simplifying processes and contributing to transparent and high-quality healthcare for over half a million U.S. workers that the three firms jointly employ. The three firms did not offer details on strategy though they said they were on the hunt for a CEO.
Faster than inflation
According to healthcare industry experts the not-for-profit venture could be in a position to directly negotiate with hospitals, doctors and drugmakers. Middlemen in the sector such as benefits managers, pharmacies and health insurers are thus in danger of being undercut.
Spending on healthcare has been increasing year-over-year in the United States at a rate that is faster than inflation. Last year the healthcare sector was around 18% of the U.S. economy. Currently corporations sponsor the health benefits of over 160 million workers in the United States.
“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. And if there is pressure to lower that,” Michael Newshal, an analyst at ISI Evercore, said.
The healthcare initiative came after conversations between the chief executive officer of JPMorgan, Jamie Dimon; the chief executive officer of Berkshire Hathaway, Warren Buffett and the chief executive officer of Amazon, Jeff Bezos. According to sources the plan of the three CEOS is to have their firms as the only customers of the joint venture. But ultimately they will share the technology and strategies that will be develop with a view to reducing costs for the government and the wider economy.
Traditional players in the healthcare sector have tried to cut costs without hurting their profit margins. In the recent past CVS Health for instance acquired Aetna Inc at a price of $69 billion arguing that the merger would end up saving employers in the United States money. For some time now healthcare investors have been expecting online retailer Amazon to disrupt the sector just like has happened in other fields.