Healthcare: How Amazon, JP Morgan and Berkshire Hathaway undermine the ailing US healthcare system
Eirik Hernes Larsen, Portfolio Manager - DNB HealthcareWritten by Eirik Hernes Larsen, Portfolio Manager - DNB Health Care
New impulses are often created where you don`t expect them. When Amazon, JP Morgan and Berkshire Hathaway announced that they would merge the healthcare schemes for their employees into a joint venture, investors feared negative consequences for pharmaceuticals companies and service providers in the healthcare industry. We’re not quite there yet, but the joint venture could bring forth some winners, but also some losers.
A wake-up call, the winners and the losers
The winners of such a joint venture would clearly be the employees of these three companies, but also the companies involved. The initiative would be a wake-up call for the overpriced and inefficient US healthcare system. We think patients will be better off as they will be getting a simpler and a more user-friendly healthcare plan. Today, under the current system, it’s difficult for patients to see whether there is cost-effective alternative treatment, and if they want it, the information is not available or difficult to access.
The losers will be the providers of healthcare services and products that are milking the market without creating any meaningful value. Typical examples include the overutilization of diagnostic tests, unnecessary surgery or expensive drugs with limited or no effect.
Technology are making its way to the healthcare sector
Technology will revolutionize how we think about healthcare.Amazon has been trying for some time to gain a foothold in the healthcare system, for example, through the mysterious "Lab 1492", which was founded to carry out research in the field of artificial intelligence and machine learning for medical purposes. With the joint venture, Amazon in particular could create high utility value for customers. Just as they do on Amazon’s e-commerce platform, employees could see the health services along with prices and cheaper alternatives. This would create not only price transparency, but the savings realized by Amazon, JP Morgan and Berkshire Hathaway could be reinvested for the employees, too.
It’s surely no coincidence that with Amazon a tech company is involved in the joint venture, because technology will make its presence felt more and more in the healthcare sector. Some health insurance companies are already more IT companies than insurance companies, since they evaluate the data of their customers profitably and preventively. Wearables are becoming more and more the standard. Against the backdrop of rapid technological development, patient-related decisions will in future probably also be made by algorithms. Whether it will be Amazon, IBM, Apple or some other tech company that sets the pace is difficult to predict. There is huge potential, however, and it will revolutionize how we think about healthcare within the next ten years, particularly with regard to preventive care.
Lack of infrastructure and legal regulations
Traditional dental suppliers will have to fear for their market shares, if Amazon expand their price advantage.However, investors also overestimate the impact of the joint venture. Not all health services can be digitized. Surgery still needs to be performed live and patients need their medication. Until now, there has been a lack of infrastructure and legal regulations, for example, to be able to supply medication or larger medical equipment. Amazon can keep up only with dental articles, as the articles are small and easy to ship. If Amazon can further expand its price advantage here, traditional dental suppliers will have to fear for their market shares.