Amazon teams up with Berkshire Hathaway, JPMorgan Chase in technology-driven healthcare venture

After months of speculation, Amazon is venturing into the healthcare industry with support from two of the nation’s biggest financial firms.

The technology giant is partnering with JPMorgan Chase & Co. and Berkshire Hathaway to launch an independent healthcare company “that is free from profit-making incentives and constraints,” according to a Tuesday morning announcement.  While the specifics of the new company are still in the planning stages, the initial focus will be on technology solutions that provide “simplified, high-quality and transparent healthcare at a reasonable cost.”

A media representative for JPMorgan did not immediately return a request for more details. An Amazon spokesperson declined to comment further on the new venture. 

Referring to rising healthcare costs as “a hungry tapeworm on the American economy,” Berkshire Hathaway Chairman and CEO Warren Buffett also acknowledged the inherent challenges in the industry. JPMorgan Chase CEO Jamie Dimon said the three companies plan to leverage their combined resources "to create solutions that benefit our U.S. employees, their families and, potentially, all Americans."

“Our group does not come to this problem with answers,” Buffett said in the announcement. “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.”

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“The healthcare system is complex, and we enter into this challenge open-eyed about the degree of difficulty,” added Amazon founder and CEO Jeff Bezos. “Hard as it might be, reducing healthcare’s burden on the economy while improving outcomes for employees and their families would be worth the effort.”

Even before Tuesday's announcement, there have been signs that Amazon is preparing to enter the healthcare market. Earlier this month, the company posted a job for an “experienced HIPAA professional.” Meanwhile, some hospitals have been testing out Amazon’s Alexa in the clinical environment.

The company has also been said to be exploring plans to enter the pharmacy market as a drug distributor. Indeed, analysts have speculated that CVS’ blockbuster deal to purchase Aetna is at least partially a reaction to Amazon’s rumored plans to disrupt the pharmacy supply chain.

So far, it’s unclear if the announcement from Amazon means that it is indeed planning to accelerate its entry into the pharmacy supply chain, “though the quest for transparency, which is lacking currently in drug pricing and also in broader healthcare delivery in America, would point to a more transformative effort by the new entity,” Leerink Partners analyst Ana Gupte said in a research note.

To Mickey Chadha, vice president of Moody’s Investors Service, the new venture could very well create “further competitive pressure” on retail-and-pharmacy giants like CVS and Walgreens, as well as other pharmacy benefit managers. However, he also noted that any new entrant in the PBM space would have a “huge disadvantage” relative to companies like CVS, Walgreens, UnitedHealth Group, Aetna and Express Scripts because of their scale.

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"In light of today’s announcement, the potential merger of CVS and Aetna is even more compelling as a more coordinated approach to medical care is necessary to lower the overall healthcare costs for consumers,” Chadha added in an emailed statement.

And for payers and providers, it will also be worth watching to see just what kind of healthcare company Amazon and its partners form.

“At this point, they could be talking as small as employee clinics and as large as the largest integrated healthcare company,” Will Hinde, healthcare managing director at consulting firm West Monroe Partners, said in an email. “But the industry is ripe for disruption, and this group of companies has the money and intelligence to succeed.”