Should insurers be worried about Amazon’s entry into healthcare?

When Amazon, Berkshire Hathaway and JPMorgan announced Tuesday that they’re embarking on a new healthcare venture, the shares of the nation’s largest health insurers promptly plummeted.

The reaction makes sense, as there’s good reason for the entrenched players in any industry to worry any time a company as massive and influential as Amazon vows to disrupt it—especially when joined by two other powerhouse firms.

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But was the panic premature? As is to be expected when assessing a venture that’s still so short on details, it depends upon whom you ask.

To Lyndean Brick, CEO of The Advis Group, “this move should send shockwaves to the insurance companies.”

Brick, whose firm offers consulting services to healthcare companies, told FierceHealthcare that she sees the new venture as an attempt to cut insurers out of the picture by directly administering health benefits. In response, she suggested payers have to get serious about innovation.

For example, she said, insurance companies have long offered wellness programs for employer-based clients, but those are generally not successful in the long run. “So they’ve got to come up with something better than that.”

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Julius Hobson, a healthcare lobbyist and attorney with the Washington, D.C., law firm Polsinelli, agreed that there could be significant implications for the health insurance industry—depending on what form the new venture takes.

“Obviously, all of this is going to take some time to set up and run, but clearly it can have a serious impact on the market if it operates well and they get other entities involved,” he told FierceHealthcare.

In the long term, Hobson added, it’s possible that the new entity could also disrupt the provider sector. For example, the three firms might leverage scale to negotiate lower prices with healthcare providers in certain markets, or even compete with providers by creating in-house clinics for employees in Amazon distribution centers.

All that said, there are plenty of signs that neither health insurers nor providers should be running for the hills just yet.

In fact, people with knowledge of the new venture told The Wall Street Journal that while the companies initially discussed taking over administration of employees’ pharmacy and health insurance benefits, that idea is now not on the table. Instead, the idea is to help the current vendors work better, rather than replace them.

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And even if the new venture does try to shake up the medical benefits sector, Leerink Partners analyst Ana Gupte is skeptical that that it could have much of an impact.

“We see the hospital supply chain as having been ‘disrupted’ already with value-based care, narrow networks and even technology—though much work is still underway,” she wrote in a research note.

Cost trends in employer-based insurance have already moderated, she added, noting that Berkshire Hathaway and JPMorgan’s health benefits supplier—UnitedHealth—has led the way in this effort.

For his part, Jefferies analyst David Windley said in a research note that the regulatory and capital challenges associated with establishing a managed care organization are quite steep. After all, trying to underwrite insurance requires a deep understanding of risk pools.

However, he noted that Berkshire Hathaway already has experience in the property and casualty insurance sectors, and said the three companies have the resources to “easily finance a new endeavor in the health insurance market.”

Ultimately, he added, “Amazon's track record of disrupting well established industries can't be discounted.”