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Amazon, Chase, and Berkshire Hathaway partner up to disrupt health care

by Ben Popken and Lucy Bayly /  / Updated 
Image: Jeff Bezos, Jamie Dimon, Warren Buffett
From left, Amazon CEO Jeff Bezos, J.P. Morgan Chase CEO Jamie Dimon and Bershire Hathaway CEO Warren Buffett.AFP - Getty Images; Reuters

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Amazon has joined forces with Warren Buffett’s Berkshire Hathaway and JPMorgan Chase in a bid to slash health care costs for their 1.1 million employees — creating a possible "black swan" event that could disrupt the industry.

Together, the three partners will combine resources to create an independent company that will initially focus on “technology solutions” to provide “high-quality and transparent health care at a reasonable cost.”

“Amazon is well poised to enter, and disrupt, the health care industry as we know it," Forrester Senior Analyst Kate McCarthy said in an email. "They have the scale and digital and customer experience capacity to bring efficiencies and improvements to the industry that are long overdue."

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Working out the business with their own employees first would be a smart way to test out the product before opening it up to the general market, she said — and that could be a game changer.

"I'm not going to call this a black swan event yet because there are few details and it would be making too many assumptions, but it has potential to be," said Jared Holz, an analyst at Jefferies.

The development is even "more promising than the news Amazon was getting into the prescription business," Jason Gomberg, a principal and pharmaceutical consulting actuary with Milliman, told NBC News in an email, "and the stock market seems to agree."

Wall Street responded swiftly to the news, with shares in CVS, UnitedHealth, and Aetna all seeing their shares take a tumble of up to 8 percent. Pharmacy benefit manager Express Scripts fell nearly 5 percent.

“The ballooning costs of health care act as a hungry tapeworm on the American economy,” said Buffett in a joint statement announcing the partnership. “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.”

“Our goal is to create solutions that benefit our U.S. employees, their families and, potentially, all Americans,” said Jamie Dimon, Chairman and CEO of JPMorgan Chase.

The soaring price of health care has drawn a new light on an interconnected machine of players that comprise the U.S. health care system. Before a drug reaches a patient, it effectively passes through the control of the drug maker, an insurer, a pharmacy benefit manager (or PBM), a wholesale distributor, and a pharmacist, with each taking a cut along the way. Most patients never see the real cost of a drug and have grown accustomed to paying a nominal $30 or so co-pay for many prescriptions.

But as health plans have rejiggered to control costs, more patients have gotten exposed to paying full "list price" at the pharmacy counter, which can run into the hundreds of dollars. That has patients, parents, and politicians up in arms. After the emergency anti-allergic reaction drug EpiPen raised its list prices to $600, as reported by NBC News, angry families stormed social media and contacted their representatives. The drugmaker, Mylan, ended up answering questions on Capitol Hill and was fined by the DOJ for overcharging Medicare.

During that controversy the company's CEO drew a new bead on one of the cogs in the health care system, the PBMs, suggesting they were to blame for most of the markup. PBMs negotiate prices between insurers and drugmakers and apply cost-saving techniques to the "formulary" of approved drugs.

Insurers and PBMs are frequently involved in contentious lawsuits with one another over pricing and profit, all adding to the pressure for new ways to reduce the cost of health care.

The PBM industry wishes the new partnership luck but is taking a wait and see approach, said Mark Merritt, President and CEO of PCMA, a trade organization representing American pharmacy benefit managers.

"If they have great ideas, we'd be glad to hear them. If they're good idea, we're happy to take them and run with them," said Merritt.

He also cautioned against companies getting involved in a complicated business that's not part of their core competency.

"These are three great companies with three smart CEOs, but I kind of take this in some way as if health care experts say they're going to fix the banking industry," said Merritt. "I think health care solutions are better solved on the back end rather than talking about what people's aspirations are."

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