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Amazon-Berkshire-JPM health enterprise piques Washington's interest

The new joint enterprise by Amazon.com Inc., Berkshire Hathaway Inc. and JPMorgan Chase & Co. to combine their business savvy and market forces to deliver simple, high-quality, transparent healthcare at a reasonable cost for their 1 million employees has piqued the interest of some in Washington, despite the lack of details about the project.

Berkshire Chairman and CEO Warren Buffett acknowledged the three companies were not coming to the new venture with ready-made answers on how to rein in the ballooning U.S. healthcare costs, which he called a "hungry tapeworm on the American economy."

But Buffett said he and Amazon founder and CEO Jeff Bezos and JPMorgan Chairman and CEO Jamie Dimon shared the belief that putting their collective resources "behind the country's best talent can, in time, check the rise in health costs while concurrently enhancing patient satisfaction."

While discussions are in the early stages, some details have started to leak out about some of the approaches under consideration, like negotiating with current healthcare providers or directly offering employees medical products.

Allen Goldberg, vice president of communications for the Association for Accessible Medicines, told S&P Global Market Intelligence in an emailed statement that his group welcomed the opportunity to share its ideas with the three companies on how to lower prescription drug costs for their employees by increasing access to generic forms of brand-name medicines and biosimilars, which are intended to be lower-cost versions of biologics — large molecules derived from natural sources, such as microorganisms or plant or animal cells.

"What our industry does, what generics and biosimilars deliver in terms of patient satisfaction and savings, is in sync with the goals of this initiative," Goldberg said.

Mark Merritt, president and CEO of the Pharmaceutical Care Management Association, or PCMA, which represents pharmacy benefit managers, or PBMs, said his group also welcomed the Amazon-Berkshire-JPMorgan endeavor, but warned it must be taken with a "grain of salt."

"The healthcare landscape is littered with promises to transform and reduce costs," Merritt told S&P Global Market Intelligence in an interview.

"So far, nobody has been able to improve on the system as it is, except for the companies that are actually in the system and constantly working to create new efficiencies."

Wall Street's response "that some new venture is going to radically alter everything was a little premature," he said.

Shares of PBMs like Express Scripts Holding Co., CVS Health Corp., Walgreens Boots Alliance Inc. and UnitedHealth Group Inc. all tumbled on Jan. 30, shortly after the Amazon-Berkshire-JPMorgan venture was revealed.

Merritt insisted that the combined total of 1 million employees from the three companies lacked the scale needed in a country of 330 million people to move the needle to reduce healthcare costs, given that large insurers and PBMs cover 60 million to 70 million lives.

Bipartisan support

But Republican Congressman John Shimkus of Illinois said the idea of the private sector creating new models that could spark more competition and lower costs was something his party embraces.

"We believe in competitive market forces," he told S&P Global Market Intelligence in an interview. "We say, 'Jump on in, the water is fine and hope that you can make a good business model that drives down prices and provides better quality of care at lower prices.' You can only do that by competition. You don't do that by government control of the market economics."

Shimkus said he encourages any organization "who thinks they can build a better mousetrap to try to build one."

Democratic Congressman Jim McGovern of Massachusetts also liked the Amazon-Berkshire-JPMorgan partnership.

McGovern said what excited him most was that the enterprise "sounds like a single-payer approach to me" — a concept largely embraced by Democrats.

"I'm watching it with great interest," he told S&P Global Market Intelligence. "I'm hopeful. People deserve good healthcare. Healthcare ought to be a right."

A new type of insurance company

Wells Fargo Securities analyst Jamie Stockton said he did not think the companies know what they want to do with the venture at this point, "so this is a little bit of a wild goose chase."

But it also may be the beginning of an organization that promotes best practices for employers looking to drive a less expensive, more efficient healthcare system, Stockton said in a Jan. 30 research note.

"Maybe this is the beginning of a new type of insurance company or something grandiose like a massive provider organization," he added.

The more plausible scenario is that the trio of companies may end up taking a fresh look at what is most broken about the U.S. healthcare system and be willing to put their muscles behind creative, technology-intensive approaches to fixing it, Stockton said.

But PCMA's Merritt insisted the "proof will be in the pudding."

"Let's not look at the hypothesis, let's look at the results. Let's see what comes out of the lab," Merritt said.