Amazon Health: Amazon’s Greatest Undertaking Thus Far

The Announcement:

As a young person who has a general understanding of where tech is today, I’m oftentimes amazed by how behind the times my healthcare provider seems to be. And here’s the thing. Not only do I live in Northern California – the technology hub of the world – but my healthcare provider is Kaiser Permanente, a company considered a leader in health IT and one that even has its own venture capital arm.

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That’s why I was beyond excited to hear that Amazon, Berkshire Hathaway and JP Morgan Chase announced, in a joint press release, that “they are partnering on ways to address healthcare for their U.S. employees, with the aim of improving employee satisfaction and reducing costs.”

A Limited Understanding:

Before we get into it, I want to emphasize that I don’t consider myself anywhere close to an expert on healthcare, let alone the American healthcare system (before and especially after writing this post). Unfortunately, I feel like this is the case with most people my age and likely even many older people too. I know that it’s incredibly regulated, politically polarized, and made up of complicated policy (which helps make our tax code extra confusing and probably partly explains the bipartisanship). Instead of getting caught up in the details of today’s healthcare situation however, I decided to focus on healthcare’s history in America which is key in understanding today’s model.

The History of Employer Sponsored Healthcare:

If you’ve already begun to skim, just know that American healthcare is a system formed by two major policy decisions. Up until the second half of twentieth century, most people didn’t even have healthcare. This all changed following WWII.

Due to the shortage of labor during the war, wages kept rising higher and higher. Realizing the danger of inflation, President Franklin Roosevelt signed an executive order that froze wages. Businesses then started using healthcare as a way to attract workers now that they were no longer able to raise wages.

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The second major event that helped institutionalize healthcare was when the IRS made all employer-based health insurance tax exempt in 1943. In other words, health care through your job became the least expensive option.

Together, these two events established the employer-based model, thus creating the foundation of which the whole healthcare industry is built on. An important characteristic of the post WWII economy was that it was a traditional economy with limited supply and almost always enough demand. Since then, the American economy has begun to shift to a demand facing economy (that where there’s almost always enough supply and instead limited demand) especially in fields where technology has helped us make significant progress. Despite this shift, the healthcare industry has remained behind for a variety of reasons ranging from the employer-based model to the regulation that has restricted information technology integration in healthcare. The question has thus become whether this lovechild company of Amazon, Berkshire Hathaway and JP Morgan can help improve and possibly even overthrow this model’s inefficiencies.

Google and Microsoft thought they could.

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Back in the simpler time that was 2007, Google tried creating a centralized health information system for their employees. Yet, this project ran aground by 2012. Meanwhile, in 2008, Microsoft  created a web based health record system for businesses and consumers. This product still exists today but has yet to bring a digital revolution to the American healthcare system.

The Road Ahead:

While neither Amazon, Berkshire Hathaway and JP Morgan Chase has yet to say what they are actually planning to do to “provide U.S. employees and their families with simplified, high quality, and transparent healthcare at a reasonable cost,” I like what my favorite tech writer Ben Thompson has hypothesized.

In short, Thompson speculates that Amazon will be the controlling force behind this new company. This new company, he calls Amazon Health, begins by building out a platform that its employees (along with Birkshires and JP Morgans) can interact with its healthcare suppliers on. This platform will eventually be converted into a marketplace where pharmacy benefit managers, insurance administrators, distributors, and pharmacies compete for Amazon’s employees. This marketplace will then be contracted out to other employers and once a certain scale has been reached, Amazon will open it to general public and begin to replace some (if not all) of healthcare’s middle men.

Amazon Health needs Berkshire Hathaway and JP Morgan to support it along the way. Regardless of how big Amazon Health becomes, they will still need insurance. This would logically come from a Berkshire subsidiary company called Re Gen, which is a reinsurance business or a company that insures insurers (try saying that three times fast). Meanwhile, JP Morgan would support Amazon through financing and capital markets.

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My Thoughts:

Although this healthcare utopia is great to dream about, healthcare’s current state suggests that we have a long way to go. I personally think of our family friend, Udi Manbar’s Ted Talk when I think of some of these challenges. Whether it be policy, security, or cost based, there seems to always be another road block in accessing and aggregating the data that could potentially relieve Americans of healthcare’s economic burden and bring medicine into the future.

Although they will definitely face more than their fair share of challenges along the way, I believe that if anyone could make this healthcare dream come true, it will be this joint venture.

The reason: patience.

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Along with being one of America’s most influential and oldest companies, JP Morgan is one of America’s largest bank with nearly two trillion in assets under management (Bank of America comes in second with around one trillion). The stability that comes from JP Morgan’s size and reputation gives Amazon a reliable partner in the long run. Then there’s the Sage of Omaha. As the first to really show how patience could prove (extremely) profitable in value investing, Buffet is clearly the right partner in a long-term operation. Finally, Amazon: the company that only plays the long game. Outside of Buffet and maybe Musk, I don’t there is anyone who’s more famous for thinking long term than Bezos. While Facebook and Google were stealing the show five or so years ago, Bezos knew the infrastructure he was building then would eventually shoot Amazon right past them. This kind of thinking is necessary when approaching something like healthcare, an industry that moves much slower due to the regulation and that which follows from it.

The only thing that I don’t believe from the press statement is the idea that this company “will be free from profit making incentives and restraints.” Part of the reason for my disbelief comes from the parties involved. Outside of being well balanced, long term thinking companies, these businesses all have one thing in common. They’re all very good at making money. As a result, I have difficulty seeing how these three companies will form an industry altering entity that’s also purely non-profit. The second reason is that Amazon drives value through convenience. Since making the healthcare process more convenient for all parties is essential to creating a new system that others will adopt, there will ultimately be a profit that can be derived through this newfound convenience.

The only other explanation is that “free from profit making incentives and restraints” means superseding the profit driven competition through vertical integration. Not only would this support Thompson’s hypothesis about this mystery company’s goals, but it would establish a new precedent for the American economy. Healthcare is no longer a place of profit.

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11 thoughts on “Amazon Health: Amazon’s Greatest Undertaking Thus Far

  1. Great post! This is extremely timely and I think you do a great job of breaking it down. This agreement between three corporate giants could reshape the entire healthcare industry, which serves to demonstrate the power of enormous capital. Particularly for Amazon, I feel that it also highlights the company’s rise to “global dominance” as it takes root in so many different aspects of our society. I’m curious to hear, however, what you think about the direction that Bezos will be looking to take it if this is successful: will Amazon continue expanding even further to become a more generalized firm? Or will it hit the brakes on growth in favor of a focus on technology and innovation? Excited to see what happens!

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  2. Great post Will! I found an article about Bezos’s 3-tier strategy toward this initiative, you should definitely read it! Find the link here: https://www.inc.com/justin-bariso/amazon-jeff-bezos-healthcare-formula-success-1-sentence.html

    Also, I will say that I have some food for thought about one of your points. While Amazon is good at making money, they are not afraid to make investments that aren’t profitable in order to serve customers. These type of investments, all long-term oriented, have led to losses at first but have proved to be incredible strategic decisions later, with the reward of dominant market share. I think this is not an uncharacteristic move for Amazon, and that if any company could make this type of risky move work, it’s Amazon!

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  3. Nice post Will! Healthcare is an extremely complex system, and you did a great job demystifying it. I never knew about the history of employer sponsored healthcare and its roots back to World War II, which I found extremely interesting. I hope to see Amazon make healthcare more accessible and reduce costs by replacing some of the middle men. I agree with you that there’s a long way to go, but if anybody can do it, it’s this Dream Team. The unfortunate thing is that I don’t know how much longer Americans can afford to wait.

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  4. Great post, Will! There are so many aspects to American healthcare, thank you for simplifying a few for us. I enjoyed your take on what these 3 specific companies can offer for this endeavor, but I also agree with Dan that Amazon typically does not sacrifice long term value for short term results. With this, these 3 companies have a strong financial reputation and need not worry about the profit making restraints.

    As Prof. Kane talked about in class, another side of this slow change in healthcare is with doctors and their integration of technology to the job. I’m curious if Amazon will strategize for this hurdle and if they can use their established reputation to ease that process as well.

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  5. Hey Will! I’m glad I read your post. It provided a lot of insight and a new perspective on the new partnership between Amazon, Berkshire Hathaway, and JP Morgan. I enjoyed the brief snippets of history you included to characterize these giants – it provides helpful context to your following thoughts. Regarding that, I agree with your view of Amazon as a company and Bezos’ strength in envisioning long-term operations. I’m interested to see where this endeavor in the healthcare field goes!

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  6. First of all, great post and amazing photos. It’s no secret that Healthcare is behind the technological curve in the United States, and I think that it is time for the massive players like Buffet, Bezos, and Dimon to capture that market share and improve the state of our healthcare in the US. My question to you is: do you think that local doctors and hospitals will adapt this system, or will they continue on as usual?

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    • I think they will be forced to adapt since it will be their only way to keep their current customers/companies if they all start using Amazon’s platform. Of course the latter needs to happen first.

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  7. The Amazon health graphic was especially useful in understanding the new partnership, great find! I am also no expert in healthcare, but the historical events you touched upon have shed some light on the industry for me (particularly how the employer-based model arose).

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  8. Great job breaking down American healthcare! As we discussed in class, integration with technology in healthcare has been slow and there are many opportunities for innovation in this area. Amazon, Berkshire Hathaway and JP Morgan Chase coming together to address the issues that exist in healthcare is a great start to solving some of the existing issues. I’m excited to follow this new partnership more closely.

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  9. Great informative post! This partnership will definitely be something to watch as these three titans pool resources and share the risk in their new venture. Like you said, I’m also skeptical about the press statement about this venture being from profit making incentives. Though it may be free from these incentives, it doesn’t mean it won’t be an extremely lucrative endeavor.

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