Amazon, Berkshire Hathaway and JP Morgan healthcare announcement, comment from GlobalData

The announcement on Tuesday 30th January 2018 that Amazon, Berkshire Hathaway and JPMorgan are investigating ways to make health care more affordable and effective for employees and patients alike is a significant step in the intersection between health, tech and insurance.

Jim Miller, President PharmSource, A GlobalData Company said:

”In their announcement the founders said that their initial focus would be on “technology solutions” that can deliver “simplified, high-quality and transparent healthcare at a reasonable cost.” This is all well and good, but can it really get to the heart of the health care cost problem in the US ?

At its most basic, expenditures on any category of services can be broken down into two major components: the quantity of services used and the price of those services.’

In health care, the quantity of services used is largely a function of age, lifestyle and genetics. Technology can’t do much about aging, although it can be helpful in diagnosing gene-based risks at an early stage. Lifestyle might be modified with the help of technology, but the persistent increase in diabetes suggests that people are pretty resistant to lifestyle changes even when it hurts their health and pocketbooks.’

On the price side, technology might reduce administrative costs and make possible some new, lower-cost services. But reducing prices must overcome some major structural barriers such as the monopoly position that hospitals have in many localities in the US. Removing the conflicts of interest presented by insurers’ profit motive, a clear goal of the new not-for-profit venture, might be more impactful than technology in bringing costs down.’

This is not the first instance of large corporations trying to take control of their healthcare costs; the US auto companies, for instance, began analyzing their employees’ health care usage 30 years ago. Despite efforts like that, healthcare costs have continued to grow at twice the rate of inflation.’

Clearly, having the talent and resources of America’s best companies can only be a good thing in the effort to bring healthcare costs under control. But costs have been resistant to innovation and intellect for decades, so we shouldn’t get too carried away about the transformative impact that even Bezos, Buffett and Dimon can have on the problem.”

Neharika Ralhan, Senior Technology Analyst at GlobalData said:

‘’Amazon, in particular, has a long and successful history of starting small projects that benefit Amazon initially with wider roll out to the masses over time. The most successful example of this being Amazon’s cloud computing service that started as an internal data management system that is now a $18bn a year business, accounting for 10 percent of total sales.

Through the redefining of data storage and computing functions accessed via the internet, Amazon Web Services has seen the reconfiguring of corporate ICT departments and the likes of Microsoft playing catch-up.’

The expertise, capital and scale the three organizations have together protect them from heavy regulation and capital requirements- the two key barriers that prevent new comers into the healthcare sphere.’

Healthcare has been in need for all encompassing disruption for some time and the partnership between Amazon, Berkshire Hathaway and JPMorgan is expected to see a flurry of similar collectives start up with the hope to hack the complexities of healthcare and insurance via technology.’’

Danielle Cripps, Financial Services Insurance Analyst at GlobalData said:

‘’This will likely only be the start of the companies’ proposition. Its scope could expand to partner with other employers in the US market. This would provide a major competitive threat to other US healthcare providers, which has already been confirmed by their shares dropping in value following the announcement.

Amazon for example may also look overseas. In late 2017, Amazon was recruiting insurance professionals in London to join a new team looking to disrupt the insurance market in the UK, Germany, France, Italy, and Spain. This highlights the global outlook of the online retailer.’

If Amazon establishes itself in the insurance market, it will not be long before other alternative providers follow suit. Apple is already a partner with Vitality in the UK, with the pair receiving press for their offer allowing Vitality customers to receive the newest Apple Watch at a discounted price. Apple has also updated its health app, enabling US customers to see their medical records on their phone. This could signal a potential move into the healthcare space.’

Alternative providers are highly influential brands, have masses of consumer data and resources, and are known for providing exceptional customer experiences – all of which makes them a significant threat to the insurance industry.”

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