Clout, Connections And Cash: How Amazon, JPMorgan Chase And Berkshire Hathaway Will Disrupt American Healthcare

Three of the largest and most dominant players in their respective fields shocked the world on Jan. 30 – and sent the value of drug and other healthcare stocks plummeting – when their CEOs announced they were launching a new health venture.

Amazon, JPMorgan Chase and Berkshire Hathaway said they are joining forces to lower medical costs and improve satisfaction for employees, which has left the rest of the healthcare world asking the same question: What else do they have up their sleeves?

Listen to the talking points, and it sounds as though each company’s CEO is eager to learn the ins and outs of healthcare – and then disrupt it in a big, big way.

Take Jeff Bezos, the founder and CEO of Amazon, who seems to appreciate the size of the hurdle in front of him: “The healthcare system is complex, and we enter into this challenge open-eyed about the degree of difficulty.”

Then there’s Berkshire Hathaway chairman and CEO Warren Buffett, who aptly summarizes the problem that needs solving: “The ballooning costs of healthcare act as a hungry tapeworm on the American economy.”

Finally, there’s JPMorgan Chase chairman and CEO Jamie Dimon. His words point to near and distant changes: “The three of our companies have extraordinary resources, and our goal is to create solutions that benefit our U.S. employees, their families and, potentially, all Americans.”

The trio’s opening gambit is a nonprofit healthcare entity, designed to provide technological solutions, added convenience and high-quality care at a reasonable cost. But you can be sure that once these industry giants figure out the inner-most workings of America’s $3.2 trillion system, and develop the expertise to win in the healthcare space, they will quickly turn their attention toward monetization.

Although some skeptics believe (or cling to the hope) that healthcare is too complex for the trio to figure out, I wouldn’t underestimate any of them. These globally respected leaders are known for their strategic genius. They have a consistent track record of exceeding the expectations they create. And though they have a lot to learn, they also have a demonstrated ability to do so.

All three have proven themselves able to experiment effectively, acquire knowledge rapidly and achieve industry-wide innovation. Perhaps most important, they’re not the kinds of leaders who let ego to get in their way of their success.

How Buffett, Bezos and Dimon Will Disrupt Healthcare

As I’ve traveled the country speaking about my book Mistreated: Why We Think We’re Getting Good Healthcare – And Why We’re Usually Wrong, the most common question I get asked is this: How will healthcare be disrupted?

My answer: By the largest businesses who purchase the most healthcare for their employees. Economics, not politics, is ultimately the most powerful and driving force in healthcare today. That’s why radical change will come from corporations, not Congress.

Major employers can make care delivery more efficient and effective, if they have the will to do so. Amazon, JPMorgan Chase and Berkshire Hathaway have the will and they have their sights set on healthcare’s “triple aim” of improving health, providing better care, and lowering healthcare costs.

Here are the tools they bring to the table:

1. Clout. Combined, the three companies begin their healthcare aspirations with an established member base of 1 million employees. By contrast, the well-funded Oscar Health is hoping for 250,000 members, now five years after being founded. What each company lacks in expertise, they make up for in reputation, power and influence.
2. Connections. Through their holdings, acquisitions and other interests, the leaders of Amazon, JPMorgan and Berkshire have close connections with hundreds of Fortune 500 companies. Once they establish their footing and know-how, they can rapidly scale their success.
3. Cash. Unlike in the startup world, the newly joined trio can invest heavily in this venture without running out of cash or having to solicit outside capital. And because all three companies are self-funded, they aren’t required to pay the Affordable Care Act tax on the cost of medical care or adhere to the legislation’s very rigid requirements around coverage.

The Role Each Company Could Play In Healthcare Disruption

The big announcement came with scant detail, but it isn’t hard to envision a blueprint for success. Each player is in it for the long-haul, each with a proven ability to apply a strategic mindset to problems and opportunities. I expect a decade-long strategy to play out, involving four overlapping phases of implementation:

1. Learning, Together. Sometime soon, the big three will begin providing care to employees while expanding their own areas of expertise, proprietary tools and systems. Berkshire Hathaway has experience in insurance based on its 1995 acquisition of GEICO and later investments in other health insurance companies. It will use these early days to gain a better understanding of the regulatory requirements of medical coverage. Amazon, meanwhile, is a world-renowned expert at negotiating retail prices. They’ll need more experience to become skilled at negotiating with doctors, hospitals and drug companies, but they will figure it out. Finally, JPMorgan Chase, with its workers scattered across the country, will need to figure out how to contract medical care nationwide. Their solution, in the short-run at least, will most likely involve subcontracting with others who already are doing so, and accepting the added cost as the price of its education.
2. Amazon: Pharmaceuticals. There is a reason Jeff Bezos is the wealthiest person in the world. Like a master chess player, he has that rare strategic ability to see into the future and make moves that help him stay ahead of the competition. His purchase of Whole Foods for $14 billion now appears intimately connected to his healthcare ambitions. The gourmet food retailer has 431 stores nationwide, many located in wealthier areas. And although brick-and-mortar isn’t Bezos’ sweet spot, Amazon will need distribution hubs for those retail items that prove trickier for home delivery: celery, milk and, oh yeah, prescription drugs. Bezos understands the more products he can deliver at lower prices, the more synergies he can create for Amazon. Because of this threat, Express Scripts, one of the country’s leading prescription-management companies, saw its stock drop 10% on the day of the announcement.
3. JPMorgan Chase: HealthIT. As the nation’s largest financial institution, JPMorgan Chase brings tremendous computer, analytic and regulatory expertise to the table. And if you trust the company to keep your money safe and secure, why not your medical information? Today’s electronic health record systems are clunky and largely designed for billing purposes. Eventually, with enough data, the next generation of healthIT will combine digital analytics with artificial intelligence to improve care delivery for patients. This technology could give patients an unprecedented ability to compare clinical outcomes and costs. It could enable information-sharing among care providers across the country. If the future of healthcare is going to be driven by patients (not doctors, hospitals, insurers or anyone else), it will require greater transparency of information on cost, data on outcomes, and a convenient tool to connect all the parts of the delivery system. Who better to do it than JPMorgan Chase?
4. Berkshire Hathaway: Integration. It’s one thing to have the pieces. It’s another to put them all together. Achieving the objectives of better care, higher-quality and lower costs will require integration, something Warren Buffett understands well. It will take insurance expertise to combine healthcare financing and delivery-system improvements. Berkshire Hathaway already has a leg up through GEICO, and a powerful insight few others seem to grasp. For all the talk about health plans managing care delivery more effectively, most continue to serve mainly as claims-data aggregators and insurance administrators. For their contributions, commercial insurers are paid a percentage of total costs, which means they have very little incentive to lower healthcare expenses. Berkshire Hathaway understands the need to replace the fee-for-service system with a capitated model that emphasizes the value, not the volume, of care.

Putting All The Pieces Together

The goal for this new company is to create an easy-to-use, coordinated health system with low prices and reliable quality. Most in the industry recognize current health plans are, in essence, intermediaries that add costs and provide limited value. Replacing them with an organization capable of delivering superior outcomes is the real long-term goal. Warren Buffett has lamented the inefficiency of the current system for years and talked about moving to one more akin to single-payer, though not government run. Combining the success of Amazon in retail pricing, JPMorgan Chase in data integrity and Berkshire Hathaway in future-oriented investment creates an attractive alternative to today’s healthcare system.

The new organization starts out as a nonprofit entity and is structured to facilitate the learning process. But as the three companies gain the expertise needed to restructure how healthcare is funded, organized and provided, they will morph into a powerful retail business. I’m confident they can (a) reduce costs by taking out the “middle man,” (b) use data and artificial intelligence to drive superior clinical results, and (c) leverage their brands and connections to scale this venture from 1 million employees to tens (and possibly hundreds) of millions of employees across the country. Their approach is a variant of the more traditional disruptive-innovation process. Instead of offering cheaper, less-sophisticated products for those who can’t afford the better option, they will start with the nation’s largest and most profitable companies, and then slowly move down-market to ever-smaller businesses.

Of course, these companies aren’t alone in their bold ambitions. Others eyeing the healthcare system’s 18% consumption of our nation’s Gross Domestic Product include CVS, with its takeover of Aetna, a combination of coverage and care delivery. There’s also Apple, with its emphasis on wearable devices and focus on becoming an aggregator of healthcare records. Certainly, Google can’t be far behind.

But the coming together of these three industry giants creates a powerful threat to all current incumbents. And as in all brilliant strategies, the possibilities are infinite. Once the first set of objectives are achieved, who better to offer the essential reinsurance and risk protection that companies need than a JPMorgan Chase or Berkshire Hathaway? Who better to deliver your medications than Amazon? And who better to buy hundreds of CT studies from hospitals and community providers – and then sell them to patients at $100 rather than $1,000 per – than all three?

Unfortunately, there is no way to invest in this new nonprofit. But if it were possible, I would have already done so.

Dr. Robert Pearl is the former CEO of The Permanente Medical Group, the nation’s largest physician group. He’s the bestselling author of “Mistreated: Why We Think We’re Getting Good Health Care–And Why We’re Usually Wrong” and a Stanford University professor. Follow him on Twitter @RobertPearlMD.