Amazon, Buffett, JPMorgan Jump Into Health Care Business

Jan. 30--Amazon Inc., Berkshire Hathaway Inc. and JPMorgan Chase & Co. announced Tuesday a joint venture to drive down health care costs, presenting a disruptive new threat to the health insurance industry eight weeks after CVS Health Corp. tied up a $69 billion purchase of Aetna Inc.

The three businesses said the initial focus of the new company will be to use technology to provide their U.S. employees with "simplified, high-quality and transparent health care at a reasonable cost."

Amazon, Berkshire Hathaway and JPMorganChase said their venture "will pursue this objective through an independent company that is free from profit-making incentives and constraints."

They did not offer details, which was criticized by one analyst.

Aetna chairman and chief executive Mark T. Bertolini said the partnership's goals are similar to the objectives of the CVS-Aetna merger: forming a company addressing an unmet consumer need in health care.

"Individuals and families want a simple, affordable and high-quality experience that helps them stay well," Bertolini said in a statement. "Our combination with CVS Health will help address those needs at the local level, and I am encouraged to see other companies working toward the same goal."

CVS spokeswoman Carolyn Castel said: "The health care market is evolving rapidly. We recognize that there will be a variety of different models that can each play an important role in successfully controlling health care costs, and we welcome the opportunity to work with all market participants towards the goal of better health outcomes at lower costs."

Health care companies, faced with the prospect of a threat from the online retail giant, Warren Buffett and a large investment bank, were taking a beating on Wall Street.

Shares of the Hartford-based Aetna fell 2.5 percent in afternoon trading and CVS dropped more than 4.5 percent.

Shares of Humana Inc. were down about 3 percent, Anthem Inc. fell more than 5.5 percent, WellCare was down 3.7 percent and UnitedHealth Group Inc. was off 3.5 percent.

In contrast, shares of Amazon were up a fraction of 1 percent and Berkshire Hathaway was nearly flat. JPMorgan shares fell slightly.

The Dow Jones was down 1.1 percent, bringing a pause to a sustained rally in response to economic growth, strong corporate earnings and federal tax reform.t.

Buffett, CEO of Berkshire Hathaway, said in a statement that "ballooning costs of healthcare act as a hungry tapeworm on the American economy."

"Our group does not come to this problem with answers. But we also do not accept it as inevitable," he said.

The effort is in the early planning stages, the three companies said. The initial formation of the company will be led by Todd Combs, an investment officer of Berkshire Hathaway; Marvelle Sullivan Berchtold, a Managing Director of JPMorgan Chase; and Beth Galetti, a Senior Vice President at Amazon.

Amazon has already entered the health care field, seeking state licenses to operate pharmacies. Some analysts said that move is partly the reason why CVS and Aetna sought its tie-up, to build a large heatlh care services company that can compete with the giant online retailer.

Leerink analyst Ana Gupte said in a client note that it's unclear if the venture means Amazon will accelerate its entry into the pharmacy supply chain. She said the drive for transparency, "which is lacking currently in drug pricing and also in broader healthcare delivery in America, would point to a more transformative effort by the new entity."

Spencer Perlman, an analyst at Veda Partners, said the statement by Amazon, Berkshire Hathaway and JP Morgan is "nothing more than a promise to do something different and provides no detail on what the companies plan to do or how they plan to do it."

As a result, he said health care share prices will likely tumble, which "says far more about the inefficiencies inherent in the current healthcare system than it does about anything Amazon or their partners can potentially accomplish," he said.

Analyst Steven Halper of Cantor Fitzgerald also questioned the enterprise.

"While we do not want to discount the clout that these three partners potentially bring to the table, it is entirely too early to cede victory to the yet unnamed venture," he said in a client note.

Halper advised investors to "take a deep breat."

Height Securities analyst Andrea Harris said that if Amazon acquires a pharmacy benefit management firm the combined company could gain enough leverage to drive down prices "and it would have a strong distribution system to boot."

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UPDATES:

This story was updated at 10:56 a.m. with comments from Aetna and CVS Health.

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