Amazon, Berkshire and JPMorgan plan for health care consolidation

Amazon.com, Berkshire Hathaway, and JPMorgan announced plans yesterday to combine forces to manage employees’ health care, with a claim that they will develop technological solutions for simplified, high-quality healthcare. These companies represent over 1 million employees and huge potential resources, of both finances and experience, to make this happen.

“The biggest advantage of this collaboration is likely the potential for innovation in health care management,” says Christina M. Dalton, an expert on health economics and health care markets at Wake Forest University in Winston-Salem, N.C.

Dalton, an assistant professor of economics with an adjunct appointment with Public Health Sciences at Wake Forest School of Medicine, says:

“Amazon has been a market leader in innovation, revolutionizing online markets and now even moving into physical markets with their new no-cashier grocery opened this month. All three of these companies have a long history in squeezing margins and smart (often aggressive) responses to competitive pressures. As newcomers in the market, they also have potential to create brand new systems from scratch, better adapted to current technology and patient needs.”

This collaboration will benefit from the large number of workers involved in two ways. The first is that health care administration and prediction of uncertain employee health care expenses is easier with large numbers of employees. This is a simple story – the chance of an illness is easier to predict over large populations where you can more reliably trust average outcomes to hold true.

The second benefit is that this collaboration will have enormous market power. This could translate into innovative payment systems being included in contracts, since health care market intermediaries will have to make more concessions if they are afraid of losing out on such a large portion of the market.

The reasons for the collaboration were stated as a desire to provide high quality care at low costs. The CEOs cited health care market intermediaries in particular. These intermediary firms exist across the health care sector and manage the flow of care between providers, pharmacy wholesalers, and insurers. These firms might manage administrative details for pharmaceutical or insurance plans, for example. However, companies may indeed be frustrated by the many levels of health care intermediaries, especially large firms that may already have expertise in large scale management of product delivery. When each level of intermediary adds a small profit margin, this adds up to a much larger cost at the end for the firm and consumer.”