Srikant Ramaswami|Jan 31, 2018

Amazon, Berkshire Hathaway and JP Morgan Chase recently announced that they were together forming an independent company aimed at lowering healthcare costs for their U.S. employees.

The three companies, which bring their scale and complementary expertise to this long-term effort, will pursue this objective through an independent company that is free from profit-making incentives and constraints, according to their press release.

With combined revenues of more than $500 billion and an employee base of over one million, the ground under many healthcare companies began to rattle. This is because for all the talk about disruptive innovation that many healthcare companies tout, they’re still victim to rigid models and serial red tape.

Ironically, the announcement was made by three companies that are not traditionally in the healthcare space but see the sense of urgency to provide satisfaction to millions and keep costs down.

The mission of “the three musketeers” is striking. In a press release issued Tuesday, the companies said:

“Tackling the enormous challenges of healthcare and harnessing its full benefits are among the greatest issues facing society today. By bringing together three of the world’s leading organizations into this new and innovative construct, the group hopes to draw on its combined capabilities and resources to take a fresh approach to these critical matters.”

Warren Buffett, Berkshire Hathaway Chairman and CEO, put it best.

“The ballooning costs of healthcare act as a hungry tapeworm on the American economy. Our group does not come to this problem with answers. But we also do not accept it as inevitable. Rather, we share the belief that putting our collective resources behind the country’s best talent can, in time, check the rise in health costs while concurrently enhancing patient satisfaction and outcomes.”

For a long time, healthcare leaders have focused on the Triple Aim—that of the simultaneous pursuit of improving the patient experience of care, improving the health of populations, and reducing the per capita cost of healthcare. And while many healthcare providers are working on achieving this, the recent news hints at a leapfrogging of sorts.

Bravo. Bravo. Bravo.

The new, not-for-profit venture is focused on “simplified, high-quality and transparent healthcare” for its employees. If this new entity could eventually negotiate directly with drug makers, doctors and hospitals, it would be a coup. In fact, one of the reasons why CVS and AETNA joined forces was precisely to argue that reaping economies of scale would drive costs down.

Indeed, healthcare premiums have spiraled out of the cosmos for more than 150 million Americans who seek it. Drug companies and others constantly refer to their “unmet needs” paradigm to justify high drug costs and many herald the high cost of R&D to justify this profligate paradox.

In fact, many healthcare companies aren’t willing to leapfrog until someone (usually outside the industry) comes by with thinking that suggests business unusual. It’s only then that there is an urgent desire to transform or terminate.

Health company stocks dived on this news (Walgreens, CVS, Express Scripts) despite the fact that details about how this new company would work are still to be discussed in detail.

Yet, as Amazon has shown, they aren’t afraid to rule the world one day, whether it’s selling prescription drugs, or delivering fresh produce.

JP Morgan runs the most influential annual healthcare conference in San Francisco every year and has the connections and backing to help make this a success. More importantly, the company spends more than $1 billion a year to cover healthcare costs for its U.S.- based employees.

And Buffett has consistently demonstrated how his investment strategies have paid off big. In fact, Mr. Buffett has publicly said that healthcare costs pose a larger threat to U.S. economic growth than taxes.

As months evolve, we will see how this new company takes shape with seasoned veterans at the helm. And while the future on how this will all work remains unclear, one thing is unequivocal: This news will disrupt the future of healthcare for generations.


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