Amazon’s New Healthcare Venture: Insurance, Drugs, or Something Else?

After months of speculation that Amazon could soon expand its presence in the healthcare sector, the Seattle-based online retail leader said Tuesday that it plans to launch a joint venture with Berkshire Hathaway and JPMorgan Chase to provide the three companies’ U.S. employees “with simplified, high-quality, and transparent healthcare at a reasonable cost.”

The companies said their goals in forming an independent, nonprofit company are to improve their U.S. employees’ satisfaction with the healthcare they receive, and to reduce their costs. The initial focus of the new firm will be on “technology solutions,” according to a press release.

Despite providing few details, the alliance between the trio of American business heavyweights grabbed headlines and sent the stock prices of several leading healthcare companies lower on Tuesday. (More on the venture’s potential focus in a minute.)

Together, the three companies employ more than 1.1 million workers. Amazon’s (NASDAQ: AMZN) headcount is about 540,000, while Berkshire Hathaway and JPMorgan (NYSE: JPM) have about 367,000 and 252,000 employees, respectively.

Tuesday’s announcement was somewhat light on particulars, such as where the new venture will be headquartered and who will be in charge of running it over the longer term. The three companies said the effort is still in the “early planning stages,” but that the leaders spearheading it will be: Amazon senior vice president of human resources Beth Galetti; Berkshire Hathaway investment officer Todd Combs; and JPMorgan managing director Marvelle Sullivan Berchtold.

In a prepared statement, Berkshire Hathaway CEO and chairman Warren Buffett said the three companies are still determining how they’ll seek to achieve the goals of better care and lower costs.

“The ballooning costs of healthcare act as a hungry tapeworm on the American economy,” Buffett said. “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.”

Berkshire Hathaway is a key player in the insurance and re-insurance industries, through holdings such as the auto insurer Geico. The Omaha, NE-based conglomerate also has significant stakes in healthcare businesses, including the dialysis clinic chain DaVita (NYSE: DVA). However, according to a CNN report, Berkshire Hathaway does not own any companies that offer health insurance.

The three companies did not specify whether they’ll attempt to reduce their employees’ healthcare costs by creating one or more new insurance plans, or through other approaches.

Another possibility would be for the three firms to launch a new pharmacy benefit manager (PBM), a term that refers to the group tasked with administering prescription drug programs for health plans. Last fall, the health insurer Anthem (NYSE: ANTM) said it planned to launch its own in-house PBM. Shares in St. Louis-based Express Scripts (NASDAQ: ESRX), one of the nation’s largest PBMs, were down more than 3.5 percent on Tuesday, as of 3:20 p.m. in New York.

Several U.S.-based health insurers, such as Aetna (NYSE: AET), Cigna (NYSE: CI), Humana (NYSE: HUM), and UnitedHealth Group (NYSE: UNH), also saw their stock prices fall Tuesday, as of early afternoon trading. So did CVS (NYSE: CVS), the retail pharmacy giant that announced plans in December to acquire Aetna for $69 billion.

Wednesday’s announcement may have sent shock waves across Wall Street, but Amazon’s move into healthcare isn’t surprising. There have been rumblings about it for months.

Sources reportedly told CNBC in November that the e-commerce giant’s cloud computing business, Amazon Web Services, was on the verge of announcing a “huge healthcare deal” with Cerner (NASDAQ: CERN), one of the nation’s leading developers of electronic health records software. (Amazon and Cerner have yet to announce a major agreement following the report’s publication.)

Separately, in September, one of Cerner’s competitors, Verona, WI-based Epic Systems, demonstrated how a patient might use Amazon’s Alexa digital assistant to order a prescription refill and perform other tasks.

Travis Good, co-founder and CEO of Datica, a healthtech startup based in Madison, WI, last month told Xconomy that “in the next 12 months to 24 months, Amazon is going to strongly move into healthcare.”

“I think Amazon is going to be doing a lot more with both pharmacy—that’s kind of the obvious one today—but also with things around healthcare data,” said Good, whose company helps set up connections between computerized patient records systems at hospitals and independent software applications.

Many hospitals and healthcare businesses already use Amazon Web Services to host their data, Good said. Renting space in a data center is often a more attractive option than the alternatives of hosting data locally or building your own data center, he added.

“Amazon plays a massive role for healthcare in enabling not just healthtech vendors but big enterprises—hospitals and payers and everybody else—to get out of the data center business and focus on what they do” best, Good said.

It remains to be seen whether Amazon’s latest push into healthcare will focus on health insurance, prescription drugs, or a combination of multiple areas. Whichever direction it goes, lots of people in the world of healthcare—and beyond—are paying close attention.

Jeff Buchanan is the editor of Xconomy Seattle. Email: jbuchanan@xconomy.com Follow @_jeffbuchanan

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