4 ways Amazon-Berkshire-JPMorgan deal could shake up health care

Show Caption Hide Caption Amazon, Berkshire Hathaway, JPMorgan create new health care company A new powerhouse collaboration between Amazon, Berkshire Hathaway and JPMorgan is looking to bring affordable health care to their U.S.-based employees. Nathan Rousseau Smith (@FantasticMrNate) has the story.

A budding alliance of Amazon, Berkshire Hathaway and JPMorgan Chase could eventually deliver savings and better health care for patients while posing a serious threat to medical companies that are reaping big profits off of the status quo.

Business titans Jeff Bezos, Warren Buffett and Jamie Dimon announced Tuesday that their companies would form an independent health care company, leaving insurers, drugmakers and pharmacy benefit managers to face a potentially seismic shift in the marketplace.

The announcement is one of the most important in years for health care and the U.S. economy, said John Sculley, former CEO of Apple and current chair and chief marketing officer for RxAdvance, a drug benefit management company.

“They’re saying ‘There’s got to be a better way,'" he said.

Had this come from anyone but these three, the response would have been skeptical. “But this is Bezos, Buffett and Dimon," Sculley said.

The announcement sets up a high-stakes showdown between the world's most powerful health care companies and a group that includes two of the world's three richest people, Amazon CEO Bezos and Berkshire CEO Buffett, as well as one of its most powerful financial executives, JPMorgan CEO Dimon.

More: Amazon, Berkshire Hathaway, JPMorgan Chase to tackle employee health care costs, delivery

More: CVS buys Aetna: How the deal will affect you

Round 1 in the fight goes to the new alliance, whose companies include about 1 million employees and have a collective market value of more than $1.6 trillion. After the announcement Tuesday, the stocks of several major health care companies — including insurer UnitedHealth Group, pharmacy benefit manager Express Scripts, drugmaker Amgen and drugstore chain CVS Health, the recent buyer of insurer Aetna — suffered losses.

The executives behind the new, unnamed coalition said they would create a company "free from profit-making incentives and constraints" to focus initially on "technology solutions that will provide U.S. employees and their families with simplified, high-quality and transparent healthcare at a reasonable cost."

"This is really promising because it’s pretty clear the health care system in the United States doesn’t really work effectively," said Robert Atkinson, president of the Information Technology and Innovation Foundation and author of the upcoming book Big Is Beautiful. "It's expensive, it doesn’t really provide universal care and coverage, and there are a lot of quality issues."

Experts believe that the coalition could help provide critical information on hard-to-understand health care costs and potentially undercut the current market for high-priced drugs.

"This is not about making money," said Marianne Udow-Phillips, director of the Center for Healthcare Research & Transformation at the University of Michigan. "They really could be a disrupter in terms of thinking about things differently."

To be sure, details about the new coalition are scarce. And the hurdles are steep — perhaps even steeper than the barriers Bezos faced in transforming Amazon into a global retail and tech giant.

"Many have tried, but few have succeeded," said Ted Dacko, a consultant who sold a health care technology company focused on delivering savings to Johnson & Johnson. "Their goal was explained, but their plan was not."

The immediate and perhaps most pressing goal for Amazon, Berkshire and JPMorgan is controlling their own significant health care expenses.

Those growing costs "act as a hungry tapeworm on the American economy," Buffett said in a statement. "Our group does not come to this problem with answers. But we also do not accept it as inevitable," he said, adding, "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."

U.S. employers provide health care insurance to about 150 million people.

Although Amazon, Berkshire and JPMorgan represent only a sliver of that pie, it's "a significant enough use-case to see how employers can help to drive down the costs," said Vaughn Kauffman, U.S. health services and new entrants advisory leader for PricewaterhouseCoopers.

The partnership of the three companies emphasizes the dissatisfaction employers have with the costs of health care, he said.

“There have been a few different examples over the years where employers negotiate directly with hospital systems on centers of excellence models," he added.

Consumer advocates, meanwhile, say people deserve easy and comprehensive access to their electronic health care records while also preserving privacy — and this coalition could potentially address that.

"The health care system needs better transparency around both cost of care and quality of care, and while the system is moving to make improvements on both of those things, the average employee and average consumer doesn’t have a lot of vision into that," said Martin Arrick, a credit analyst who tracks not-for-profit health care companies for S&P Global Ratings.

Here are four ways the alliance could disrupt health care:

1. Take out the middleman

Just as Amazon provided low product prices for consumers by bludgeoning traditional retailers, the coalition could eliminate layers of the health care system to strip out costs.

"Amazon's track record of disrupting well-established industries can't be discounted," Jefferies stock analyst David Windley said in a note to investors.

Express Scripts, a pharmacy benefits manager that could be harmed by the new alliance, said in a statement the announcement reflects a "clear recognition that the health care system needs to continue to create and deliver meaningful value to payors and patients."

"We look forward to hearing more about this new initiative and how we can work together to improve health care for everyone," Express Scripts said.

2. Provide drugs to consumers more efficiently

Amazon specializes in shipping products to consumers. Since drug companies rely heavily on mail orders, Amazon's long-rumored entry into the pharmacy world could introduce price-lowering competition.

"We recognize that there will be a variety of different models that can each play an important role in successfully controlling health care costs," CVS Health said in a statement. "We welcome the opportunity to work with all market participants towards the goal of better health outcomes at lower costs."

3. Using data to improve care

With Amazon's massive Web services division on board, the coalition could use data analytics to deliver health care services more efficiently.

That would theoretically help make health care more affordable.

4. Launch their own insurance company

Fears of this possibility are running wild through the insurance industry. But Mizuho Securities analyst Ann Hynes said it's unlikely.

"Even if the three companies were to form its own managed care plan, we would view the new company as another competitor in a competitive marketplace and NOT as a market disruptor," she said in a note to investors.

Contributing: Mike Snider

Follow USA TODAY reporter Nathan Bomey on Twitter @NathanBomey.