Amazon, Berkshire Hathaway and JP Morgan team up on US health care

Warren Buffett, Amazon and JP Morgan have health care serviecs in their sights. Nati Harnik/AP

Three corporate giants are teaming up to combat what billionaire Warren Buffett calls a “hungry tapeworm” feasting on the US economy: health care.

Amazon.com, Mr Buffett’s Berkshire Hathaway and JP Morgan said they plan to collaborate on a way to offer healthcare services to their US employees more transparently and at a lower cost. The three companies plan to set up a new independent company “that is free from profit- making incentives and constraints,” according to a short statement on Tuesday.

The move sent shares of healthcare stocks falling in early trading. Express Scripts and CVS Health, which manage pharmacy benefits, slumped 6.7 per cent and 5.5 per cent, respectively. Health insurers Cigna and Anthem also dropped.

The healthcare industry has been nervously eyeing the prospect of competition from Amazon for months. While the new company created by Amazon, Berkshire and JPMorgan would be for their US staff only, this is the first big move by Amazon into the industry. The new collaboration could pressure profits for middlemen in the US healthcare supply chain.

“Hard as it might be, reducing healthcare’s burden on the economy while improving outcomes for employees and their families would be worth the effort,” said the Amazon chief executive Jeff Bezos. “Success is going to require talented experts, a beginner’s mind, and a long-term orientation.”

Healthcare spending was estimated to account for about 18 per cent of the US economy last year, far more than in other developed nations. Despite efforts to curb costs, studies suggest that US doctors and hospitals continue to provide too much health care. In a survey of physicians' perspectives published last year in the journal PLOS One, the average estimate was that 20 per cent of medical care was unneeded, including about a quarter of tests, a fifth of prescriptions and more than one in 10 medical procedures.

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Amazon, Berkshire and JP Morgan are among the largest private employers in the US, with a combined 1.2 million workers. And they’re among the most valuable, with a combined market capitalization of $1.6 trillion, according to data compiled by Bloomberg.

The effort is in its early planning stages, the companies said. It’s being spearheaded by Todd Combs, who helps oversee investments at Berkshire; Marvelle Sullivan Berchtold, a managing director of JP Morgan; and Beth Galetti, a senior vice president for human resources at Amazon.

Ms Sullivan Berchtold joined JPMorgan in August after eight years at the Swiss pharmaceutical company Novartis, where she was most recently the global head of mergers and acquisitions, according to her LinkedIn post.

The management team, location of the headquarters and other operational details will be announced later, the companies said.

Mr Buffett has long bemoaned the cost of US health care.

Last year, he came out in favour of drastic changes in the US health system, telling PBS New Hour  that government-run health care is probably the best approach and would bring down costs.