Healthcare stocks plunged on Tuesday amid a new competitor, or competitors, entering the U.S. market that will attempt to tackle the growing problem of healthcare in America. Amazon’s Jeff Bezos, Berkshire Hathaway’s Warren Buffett, and JP Morgan’s Jamie Dimon announced they will team up to combat the “hungry tapeworm” (as Buffett calls it) that healthcare is on the U.S. economy by offering services from a new independent healthcare company.
On Tuesday, after the announcement, United Health Group and Cigna saw their stocks drop five percent and Aetna dropped three percent, according to a report from CNBC.
The three business giants have said they will collaborate to search for a mechanism to supply their U.S. employees with healthcare at a lower cost and in a more transparent fashion. In a statement from the three, they will also build a company, “that is free from profit-making incentives and constraints,” according to a report from Bloomberg.
After Amazon entered the food retail sector by buying Whole Foods Market in 2017, the healthcare industry has been timidly anticipating competition from Amazon CEO Bezos. With his net worth now over $100 billion, Bezos has dipped into many major markets in a show of competitiveness over the last few years. Although the new company would only service the U.S. employees of the three major businesses in its early stages, it is the first major move by Amazon into the U.S. healthcare market. Analysts claim that the measure could squeeze profits for wholesalers in the supply chain.
“Hard as it might be, reducing health care’s burden on the economy while improving outcomes for employees and their families would be worth the effort,” Bezos said in the statement. “Success is going to require talented experts, a beginner’s mind, and a long-term orientation.”
The new healthcare company will first only service U.S. employees of Amazon, Berkshire, and JP Morgan, per the statement. Though, ultimately the effort will create bargaining power in an attempt to lower healthcare costs in the U.S. Furthermore, the initiative is said to provide more transparency with patients and their healthcare spending over doctor visits and lab tests. As well, the effort will seek to research what is crucially needed for patients and how to best serve them. The new company is set to mitigate costs by enabling direct purchasing of medical items, cutting out the middleman, saving doctors and patients money.
In the early stages of development, Todd Combs, investment manager at Berkshire, will lead the effort to form the company. In the future, the business giants claimed that the initiative could expand beyond the three companies and encompass a broader spectrum of people. “Our goal is to create solutions that benefit our U.S. employees, their families and, potentially, all Americans,” Bezos stated.
Berkshire’s Buffett has criticized high cost healthcare for years. In an interview in 2017 with PBS NewsHour, he explained that, “government-run health care is probably the best approach and would bring down costs,” according to the report. Though, he is now spearheading a private-sector approach to compete in the industry. Last year, 18 percent of the U.S. economy was attributed to healthcare spending.
Some industry analysts claim the high costs are due to patients receiving “too much” healthcare, insofar as irrelevant tests and prescriptions are used in order to mitigate unknowns. In the medical journal PLOS One, a survey of doctors revealed, “20 percent of medical care was unneeded, including about a quarter of tests, a fifth of prescriptions and more than one in 10 medical procedures.”
“The ballooning costs of health care act as a hungry tapeworm on the American economy,” Buffett said on Tuesday. “Our group does not come to this problem with answers. But we also do not accept it as inevitable,” he added.
It will be interesting to watch as Amazon, Berkshire, and JP Morgan tackle U.S. healthcare costs. This is not the first initiative taken to provide solutions to the ongoing problem. In 2016, over three dozen companies, including International Business Machines Corp., Berkshire’s BNSF Railway, American Express Co., Johnson & Johnson JNJ, and Macy’s Inc. announced they would team up to craft a plan to lower their companies’ healthcare spending by forming the Health Transformation Alliance, according to Market Watch. The nonprofit group was set to combining the negotiating power of its member companies to secure lower prices than any individual healthcare company could alone.
