An Amazon Arms Race
THE CALL FOR PREEMPTIVE HEALTHCARE MERGERS
The healthcare industry, currently representing nearly a fifth of the US economy, is overdue for a major shakeup. McKinsey & Co estimates that $900 billion of the $3.3 trillion in US healthcare costs was wasted or misused in 2017 alone. With the rising costs of insurance plans, the complicated reimbursement system, and medical visits that cost more for less care, it is understandable that 71% of Americans believe that the system has major flaws.
Enter Amazon.
In January 2018, Amazon announced a partnership with Berkshire Hathaway and JPMorgan Chase & Co. The goal of this triumvirate – consisting of Jeff Bezos, Warren Buffet, and Jamie Dimon – is to create a healthcare company that provides transparent and high-quality care to their US employees at a reduced price, cutting out the insurance company middleman. Because this venture might lead to a broader revamping of a broken system nationwide, Americans will be in for quite a show in the markets when this syndicate opens its door.
Take what happened when Amazon merged with Whole Foods: price cuts and increased online access. Their stock shot up, while grocery stocks plummeted 5-10% in the days following. Grocery store chains had to refashion their business models and slash pricing structures to stay in the game.
No doubt inspired by the partnership announcement, the current revival in healthcare mergers continues to pick up steam in 2018. CVS, for example, is in the midst of a $69 billion acquisition of Aetna. A snowballing trend, this buddy system may soon become necessary for survival. Drugstore giants are acquiring insurance companies while insurance companies are bidding on pharmaceutical holders, all in the effort to join forces and reduce soaring healthcare costs.
While the partnership’s plan is currently to provide care only to employees, if they are successful in their disruption, the healthcare arena will be ripe for a potentially lucrative takeover. And if the brainchild of Bezos, Buffet, and Dimon starts taking on patients beyond employees as a for-profit venture, Americans may see the Whole Foods trend repeated in a medical-style arms race. The partnership may be able to negotiate lower deals by going directly to suppliers and manufacturers, while healthcare giants in insurance, pharmaceuticals, and biotechnology may be forced into vertical mergers just to keep up. These massive companies will try to shorten the supply chain to improve efficiency, entice new clients, and continue turning a profit. Smaller companies, in turn, may see a dive in their stock as they struggle to keep up.
On the other hand, telemedicine and biotechnology companies may be thrilled to get involved with the new Amazon venture. If the Bezos-Buffet-Dimon corporation takes on their technologies, their customer base and profits are set to skyrocket. And as the three business titans have already expressed their interest in innovative healthcare technologies, VC companies and angel investors may see a great return on their tech investments if one of their investees gets incorporated into this new healthcare infrastructure.
Works Cited
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Demko, Paul. “Amazon's New Health Care Business Could Shake up Industry after Others Have Failed.” POLITICO, POLITICO, 30 Jan. 2018, www.politico.com/story/2018/01/30/amazon-health-care-business-316314.
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