Bill Owens: The New Players In Healthcare

Feb 23, 2018

The announcement that Amazon, Berkshire Hathaway and J. P. Morgan Chase are combining in some fashion to enter the healthcare marketplace, has the potential to create a new dynamic in healthcare. The number of employees under the control of these entities is significant as Amazon employs 154,000; Berkshire Hathaway employs 257,000; and J. P. Morgan Chase employs 191,000 for a total of 602,000. Tens of millions of Americans are insured through traditional insurance products.

The Amazon, Berkshire Hathaway and J. P. Morgan Chase proposal appears to be driven by the desire to stem the ever increasing cost of healthcare to employers. The open question, since there was little detail provided, is how they intend to accomplish that goal. The Republican attempts at healthcare reform focused on premium reductions which does not necessarily ensure a reduction in healthcare costs. It is not a very complicated algorithm to produce lower premiums, if you provide plans with little benefits, or plans with very high deductibles and copays. This does nothing to reduce healthcare costs, but simply shifts the burden from employers or the government to the individual seeking healthcare. The combination of Jeff Bezos and Warren Buffet would seem to point to a philosophy that would be desirous of reducing costs to their employees as well as their businesses and improving outcomes. There are several ways in which this group could accomplish a reduction in healthcare costs, one of which is already in play with Amazon’s announcement that it intends to go into the pharmaceutical sales business. Amazon may very well take the idea of buying in bulk to a new level, and effectively engage in negotiations for drug prices which is something that many of us have urged Congress to allow Medicare to do. Mr. Buffet and Mr. Diamond can bring capital to this process, thus increasing Amazon’s ability to purchase drugs in potentially extraordinary quantities. Amazon then has the ability to deliver those drugs throughout the United States in what we already know to be a very efficient, far-reaching business model. This single activity could reduce drug costs by twenty percent (20%) or more, and it is well-known that what has been driving up healthcare costs for the last several years has, in fact, been increasing drug prices. The other side of this, of course, is what steps will they take with hospitals and other providers? Will they reach out to large healthcare systems and negotiate contracts for coverage in exchange for reduction in premiums and sell drugs to these entities at reduced prices, thus, making up some of the lost revenue for healthcare systems and providers. I would anticipate that this enterprise would also look at value based payments with the ability to utilize systems being developed in New York and other states that could be used a model, and again, with the huge economic clout and a significant number of employees make the implementation of value based payments quicker and smoother than other organizations attempting to do the same will have the ability to do.

We can also look to the CVS/Aetna transaction as further evidence of potential healthcare delivery changes being driven by corporate America.

The fact that CVS/Aetna and the Amazon, Berkshire Hathaway and J. P. Morgan Chase deals are moving forward will hopefully create not only significant competition but spur creativity relying on concepts brought into the healthcare system by Obamacare, but with significantly greater capital with which to implement those ideas.

Berkshire Hathaway owns insurance companies and with the financial clout that the three bring to the table, the acquisition of additional insurance companies also comes into play. The potential for the development of partnerships with large health systems by which they could sell or provide insurance to their members and would have the resources to develop technology which would greatly increase the productivity and efficiency of these organizations.

It cannot be lost on these organizations that the cost of sick employees has a significant negative impact on their profitability, and even slight changes in those costs could be significant.

I am hopeful that Amazon, Berkshire Hathaway and J. P. Morgan Chase will develop systems, technology and methodologies for which they will have adequate economic capacity to change the way healthcare is delivered, lessen its cost, and bring improved healthcare for a wide swath of America.

Mr. Owens is a former member of Congress representing the New York 21st, a partner in Stafford Owens in Plattsburgh, NY and a Senior Advisor to Dentons to Washington, DC.

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