Amazon, Berkshire, JPM Form Health Care Company to Cut Costs

The new entity will provide health care for more than 500,000 U.S. employees, Inc., Berkshire Hathaway, and JPMorgan Chase & Co. will form a health care company aimed at cutting costs for their U.S. employees, the three partners have announced. Reuters reports that the news sent shares in the broad health care sector sharply lower.

The independent company will be “free from profit-making incentives and constraints,” the announcement said. It will initially focus on technology to provide “simplified, high-quality, and transparent health care” at a “reasonable” cost for its more than 500,000 employees in the United States.

Investors in the health care sector have been nervous about technology giant Amazon becoming a competitor and eating away at profits, just as it has done in the retail sector, according to Reuters. Amazon has been looking at the pharmacy business and pharmacy distribution, according to numerous media reports and Wall Street analysts.

With Amazon teaming up with JPMorgan, a leading financial company, and Berkshire, the third largest public company in the world, the behemoth online retailer could broaden the scope of its efforts to affect U.S. health insurers, Reuters said.

U.S. health care spending increases each year faster than inflation, and in 2017 it accounted for 18% of the U.S. economy. Corporations, which sponsor health care plans for more than 160 million Americans, and the U.S. government are trying to cut costs.

“Investors have continually asked what unexpected development might spoil the strong investor sentiment toward managed care. Unfortunately, this seems tailor-made to fit the bill,” BMO Capital Markets analyst Matt Borsch said in a research note.

The announcement knocked about $19 billion off UnitedHealth Group Inc.’s market capitalization in pre-market trading. Shares in health insurers UnitedHealth, Anthem, Inc., and Cigna Corp. all fell 5% pre-market. Drug-store operators CVS Health Corp. and Walgreen Boots Alliance as well as pharmacy benefits manager Express Scripts Holding Co. dropped 5% to 7%. Drug distributors Cardinal Health and McKesson were down more than 4%, Reuters reported.

The plan, currently in the early stages, will be spearheaded by Berkshire investment officer Todd Combs, JPMorgan managing director Marvelle Berchtold, and Amazon senior vice president Beth Galetti.

“The ballooning costs of health care act as a hungry tapeworm on the American economy,” Berkshire Hathaway Chairman and Chief Executive Officer Warren Buffett said in the announcement. “Our group does not come to this problem with answers. But we also do not accept it as inevitable.”

Source: Reuters; January 30, 2018.