Buffett-Bezos Health Plan Will Hinge on Buying Power, Technology

(Bloomberg) -- Big companies have been trying to get a handle on health-care costs for decades, with limited success. A new partnership between Amazon.com Inc., JPMorgan Chase & Co. and Berkshire Hathaway Inc. has the potential to be one of the most ambitious employer efforts to date to control health expenses. 

Here are five takeaways:

Market Muscle

There’s buying power in numbers. By combining three of the biggest companies in the world, with more than a million employees in total, the new venture will be able to directly negotiate better deals with sellers of prescription drugs, lab tests, and medical devices. The combined economic might could also give the companies more power over coverage decisions.

Better Technology

Ever try comparison shopping for prescription drugs or elective surgery online? It’s hard to do, in large part because existing players have little incentive to reveal their true prices. By cutting through the clutter, the companies could allow their employees to shop for drugs, lab tests and other basic services within their health plan, with much the same ease as shopping for electronics or groceries online.

Middlemen Beware

Prices for prescription drugs, which move through a complex chain of pharmacy-benefit managers and wholesalers before reaching patients, are especially hard to understand. Even big employers often have to travel to secure rooms in the offices of pharmacy-benefit managers to learn the secret discounts they are getting on brand-name medications. The new joint venture could make pricing information more accessible--and drive down profit margins for drug-plan managers such as Express Scripts Holding Co. and CVS Health Corp., and wholesalers including AmerisourceBergen Corp. and McKesson Corp.

Test & Release

Amazon.com has a habit of trying new initiatives in-house and then unleashing them on the wider world. The joint venture is internally focused on the three companies now -- but if the model succeeds it could expand greatly in the future, allowing other companies to buy into the new model, or set up competing programs.

Others Have Tried

These companies aren’t the first to try to ‘disrupt’ health care. The industry, at 18 percent of the U.S. economy, is a fat target, but the power of entrenched players and the complexity of the system makes it difficult to transform. Just two years ago, the Health Transformation Alliance launched with much fanfare, promising to “fix our broken healthcare system.” That group -- with members including International Business Machines Corp. and American Express Co. -- ultimately partnered with existing industry players including CVS and UnitedHealth Group Inc.’s OptumRx.

To contact the reporters on this story: Robert Langreth in New York at rlangreth@bloomberg.net, Zachary Tracer in New York at ztracer1@bloomberg.net.

To contact the editors responsible for this story: Cecile Daurat at cdaurat@bloomberg.net, Timothy Annett, Cynthia Koons

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