09252018What's Hot:

Amazon’s new health care business could shake up industry after others have failed

Expectations had been building for months that Amazon would make a major play in the health care sector somehow. | David Ryder/Getty Images

The announcement that three corporate giants would partner on health costs stirred hopes but left plenty of questions.

Three corporate behemoths are promising to shake up the health care industry — a notoriously inefficient sector that represents nearly a fifth of the U.S. economy.

Though the surprise Tuesday morning announcement from Amazon, JPMorgan Chase and Berkshire Hathaway was grand in ambition, it was scarce in details, leaving plenty of questions about just how the companies could tackle an unsustainable $ 3.3 trillion health care system when so many others have tried and failed.

Story Continued Below

“The ballooning costs of healthcare act as a hungry tapeworm on the American economy,” Berkshire Hathaway CEO Warren Buffett said in a statement. “Our group does not come to this problem with answers. But we also do not accept it as inevitable.”

Their partnership, at least at the outset, may be limited. The three companies said they will band together to provide cheaper coverage to their employees, relying on technology in some unspecified way. But the scope of their aims suggests something much grander, said Robert Wachter, chairman of the medicine department at the University of California, San Francisco.

“The health care system is absolutely ripe for disruption,” Wachter said. “Nobody’s figured out how to do it yet.”

Skepticism appears warranted, however, about the prospects for Amazon and its new partners achieving significant changes in a sector that’s proven largely impervious to major reform efforts over decades.

“We’ve seen these deals before,” said Sam Glick, a partner in the health and life sciences division at Oliver Wyman. He cited Walmart and Intel as two companies that have sought to provide health care for employees while cutting out the insurance middleman. “It’s not news that jumbo employers are frustrated with escalating costs and lousy experiences in the health care system.”

The announcement comes as traditional players in the health care industry are striking new alliances to withstand soaring health care costs. Most notably, CVS Health’s pending blockbuster $ 69 billion purchase of Aetna would shake up the industry by merging major players from the insurance and pharmaceutical industries.

Expectations had been building for months that Amazon would make a major play in the health care sector somehow. Analysts predicted they were eyeing prescription drug distribution amid growing public angst over drug costs.

The Tuesday morning announcement sent tremors through the health care industry. Express Scripts, one of the country’s largest prescription benefit management companies, saw its stock price initially plummet by 10 percent on the news. The stocks of insurance giants UnitedHealth Group and Anthem fell by more than 5 percent before recovering slightly.

Scant details provided by the company indicate it will focus on rising costs of employer health insurance. Employers in recent years have tested a suite of different strategies to control costs, such as narrowing provider networks, tying contracts to quality of care, wellness incentives, and more. But health care spending is still expected to eat up a growing share of the economy.

Still, employers have continued to offer coverage at consistent rates in recent years, seeing health insurance as an essential recruiting tool. About 151 million Americans were enrolled in employer health plans last year, representing the country’s largest source of health insurance.

That stability has defied predictions that Obamacare would prompt more companies fed up by health care costs to shed coverage and send workers on the law’s insurance marketplaces. But that stability has come at a much higher price for workers, who have been required to pay more and more from their own pockets for medical services.

The Amazon logo is displayed at the Nasdaq MarketSite in New York's Times Square. | AP Photo

That shift in employer plans, as well as individual plans in the Obamacare marketplaces, has fueled Americans’ anxiety over increasing medical bills and drug prices. Americans in recent years have regularly pointed to soaring health care costs as one of their top concerns for policymakers.

Telemedicine companies are already positioning themselves to pitch their technology to the three companies’ new health care entity as a way to reduce costs. Mark Winter, CEO of CareSpan — which displays vital signs and other patient data alongside a high-resolution video chat system — anticipates an uptick in business as these and other large employers look to trim spending.

Winter told POLITICO he’s optimistic about the new partnership as the three companies have more than a combined 1 million workers.

“The size of their workforces in itself is very significant,” he said.

White House adviser Gary Cohn argued that the fledgling partnership between the corporate titans tracks with the Trump administration’s efforts to provide more insurance options and cheaper coverage by allowing companies to more easily band together.

HHS Office of Civil Rights Director Roger Severino is pictured. | Getty Images

“We’re doing the same thing here at the White House,” Cohn told CNBC on Tuesday morning, pointing to a new administration policy expanding small business offerings outside of the Obamacare marketplace.

But whether the fledgling partnership can shake up the entrenched problem of unsustainable health care costs won’t be known for years.

“You certainly see the excitement this morning in the announcement,” said PwC analyst Vaughn Kauffman. “We’ll see how it plays out, but these are three iconic companies [eyeing an] industry in need of addressing this cost issue in new and interesting ways.”

Jason Millman and Mohana Ravindranath contributed to this report.

This article tagged under:

Missing out on the latest scoops? Sign up for POLITICO Playbook and get the latest news, every morning — in your inbox.

Source: POLITICO – TOP Stories

comments powered by HyperComments

More on the topic