Amazon, Berkshire, JPMorgan partner to cut health-care costs

Company won’t aim at profits, will initially focus on technology

Amazon, Berkshire, JPMorgan partner to cut health-care costs
Berkshire Hathaway chairman and CEO Warren Buffett enjoys his favourite beverage, cherry Coke, before his company's AGM in Omaha, Neb., May 6, 2017. REUTERS/Rick Wilking




(Reuters) —, Berkshire Hathaway and JPMorgan Chase will form a health-care company aimed at cutting costs for their U.S. employees, they said on Tuesday, sending shares in the broad health-care sector sharply lower.

The company will not aim to make a profit and initially focus on technology to provide what they called "simplified, high-quality and transparent healthcare" for their more than 500,000 U.S. employees.

"The ballooning costs of health care act as a hungry tapeworm on the American economy," said Berkshire Hathaway chairman and chief executive officer Warren Buffett. "Our group does not come to this problem with answers. But we also do not accept it as inevitable."

The announcement comes as investors in the healthcare sector worry that technology and retailing behemoth Amazon could become a health-care competitor and eat away at sector profits, just as it has done in retailing.

Amazon has been looking at the pharmacy business and pharmacy distribution, according to numerous media reports and Wall Street analysts. It is unclear if the company has plans beyond this initiative.

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

Prices have risen under former Democratic President Barack Obama's 2010 Affordable Care Act, which overhauled health insurance and expanded the Medicaid government program for the poor.

Republican President Donald Trump has rolled back the mandate that required all Americans to have health insurance or pay a fine, cut subsidies for low-income people and promised new, cheaper insurance.

By teaming up with JPMorgan, the biggest U.S. bank, and Berkshire, the third largest public company in the world, Amazon appears to be taking a big step in shaking up the health industry.

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


Health insurers that provide benefit management or health plans to the three companies could be among the hardest hit.

JPMorgan uses UnitedHealth and Cigna for health benefits for its global workforce, according to ISI Evercore analyst Ross Muken. Neither company was immediately available for comment.

Amazon uses Premera Blue Cross, part of the Blue Cross Blue Shield network, according to Muken. Express Scripts, the pharmacy benefits manager, has disclosed it manages pharmacy benefits for Amazon.

Shares in UnitedHealth, Cigna Corp and health insurer Anthem fell four per cent to seven per cent.

Drugstore operators CVS Health and Walgreen Boots Alliance as well Express Scripts all dropped between four to eight per cent.

Drug distributors Cardinal Health, AmerisourceBergen and McKesson were off two to four per cent.

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.

Wall Street saw the move as a positive for Amazon though its shares fell 0.5 per cent. Much of Amazon's value is from its owning and interpreting massive amounts of data, according to ISI Evercore.

"Though it is unclear how the data of this venture will be shared/utilized, it is not inconceivable that Amazon could potentially leverage it longer term to better navigate the complexities of the health-care market," the note said. 


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