The Tennessean | Jamie McGee
As Amazon, Berkshire Hathaway and JPMorgan Chase announced they would together seek to tackle the high-cost health care industry for their employees, the Nashville health care community reacted with intrique.
While the three global companies did not specify what their independent company will do in the health care space, their track records were enough to move markets on Tuesday. UnitedHealth Group, Aetna, Anthem and CVS Health Corp. shares fell by more than 3 percent.
Paul Keckley, a health care analyst, said the current system that centers around health care providers and insurers could be altered as these three significant companies enter the sector.
“What Amazon is really challenging is the notion that (the) system provides optimal value. Could we be getting better results at a substantially lower price by re-engineering everything we do?” Keckley said. “This industry is ripe for disruption.”
Amazon, Warren Buffett’s Berkshire Hathaway and JPMorgan said they would focus on technology to provide health care for employees and their families “without profit-making incentives and constraints,” the New York Times reported.
The arrangement could ultimately lead to large scale improvements for the general public, not just employees of those three companies, Nashville health care investor Vic Gatto said.
“Those three entities are very large with huge balance sheets and are willing to try new things,” Gatto said. “They certainly have plenty of technology and financial strength to create a public-facing company that could either compete with HCA or BlueCross (BlueShield) or whoever they decide they want to compete with.”
The announcement follows a stream of acquisitions underscoring major shifts in the health care sector as companies seek to improve the consumer experience. In December, CVS Health announced it is buying Aetna, Optum announced a merger with DaVita Medical Group and Humana said it is acquiring Kindred Healthcare.
Centers for Medicare & Medicaid services said health care spending in the U.S. is expect to outpace GDP growth and will rise to 20 percent of the GDP by 2025 as medical prices increase.
“It’s unsustainable,” said Jumpstart Capital Managing Director Dave Vreeland who called for an Amazon health care platform last year. “We have to see the health care system dramatically change in our country. It is going to happen by outside players.”
Vreeland said the announcement could bode well for Nashville companies and bring new opportunities.
“Nashville is going to need to see where the health care system is headed and figure out how to get in front of it,” Vreeland said.
The industry has been making changes to business models as it anticipates changes coming from outside the sector, said Haley Hovious, president of the Nashville Health Care Council. The new Amazon and Berkshire company could lead to both cost pressures and opportunities for local companies, she said.
“If you look at the health care economy, there are so many different areas of it, that change has been coming slowly and people are finding different areas to innovate within, but we haven’t really seen a massive disruption,” Hovious said.
Gatto, CEO of health care investment fund Jumpstart Foundry, said the slow pace at which the health care sector has addressed its challenges and innovated has been worrisome. He sees Amazon’s and Berkshire’s health care focus as yielding greater opportunities for early stage companies that offer cost-saving alternatives to current practices, Gatto said.
“We’ll have 70 portfolio companies that are innovating in health care and delivering more effective and less expensive health solutions,” he said.
Amazon’s new health care focus also could be beneficial to Nashville’s bid for a second Amazon headquarters, Gatto said. The Seattle-based company announced in January that Nashville was among 20 cities being considered for the facility that will employ about 50,000 people.
“We have a lot of health care talent that lives in Nashville,” Gatto said. “It certainly is a vote in Nashville’s direction that Amazon is getting into health care.”