Earlier this year in January, Jamie Dimon, Warren Buffett and Jeff Bezos - representing their companies JPMorgan, Berkshire Hathaway and Amazon respectively - gave a press release stating that they were working together to figure out how to reduce healthcare costs. In their statement it was expressed that ballooning healthcare costs are hurting the US economy and that they do not accept this as an inevitable fate. Instead they are seeking to create technology to simplify the health care system and give greater transparency. The program appears to be initially for their own employees, who are more than a million strong globally, but they gave no indication of this spreading to other employers. Interestingly though, they suggested that the initiative would be, “free from profit-making incentives and constraints,” and such righteous motives would suggest that if such a program truly works it would become accessible to all. Healthcare spending grew by 4.3% in 2016 to $3.3T, and according the projected NHE data, spending growth will rise to an average 5.5% y/y from 2017-2026. This would mean a total of $5.7T spent on healthcare annually, a quarter of the current GDP.
It would seem Amazon will be leading the charge in development given its prowess in technology, but could this trio simply be looking to sell medical devices and drugs direct to consumer through a platform like Amazon’s? It has been a long time coming for Amazon to move into the pharmacy space, and it is certainly something they have had their eye on. However, it is not just these companies looking to disrupt health care, with Apple, Alphabet and Uber all looking to enter the space in their own way. Though there is a lot of power and innovation behind these companies, it would seem many are betting against their ability to dominate the system because it is such a regulated industry. As previously mentioned, Amazon would have much to gain from entering the Pharmacy space, yet there are countless challenges to be faced from the FDA to the drug manufacturers to the health insurers and finally to the actual customer.
It is without a doubt that the healthcare industry is ripe for disruption and change. Technology has grown to a point where we can wear devices that constantly monitor our state, and possibly give certain diagnoses. This type of technology focuses on preventive care, which has been the concentration of both Alphabet and Apple. Yet, what Amazon along with JP and Berkshire Hathaway potentially can create is a system where such medical devices give feedback to the platform and automatically order the correct medication.
Many companies are now looking for ways to reduce the amount they are spending on coverage for their employees. Premiums have skyrocketed, but little change has been made in the face of a tight labor market and fear of upsetting employees with cuts to their benefits. This has caused margins to fall, so it is a good sign to see companies looking to finally change the direction of how they cover their employees. I believe it is still too early to make any recommendations on how to react to the news coming from Amazon, JPMorgan and BH, but it will be important to keep any eye on how companies across the nation continue to deal with rising health care costs going forward.