Amazon and the Uncertain Future of American Healthcare

Posted on by Kevin Kenney

Healthcare spending accounted for close to 18% of the U.S. economy in 2017, far more than in any other developed nation.1 “Compared to 35 other [developed] countries, Americans have spent more on their health every year since 2000.”2 But in spite of all that spending, the U.S. continually ranks below even its most frugal peers in health outcomes and specifically in average life expectancy.3 Consider that the average life expectancy of an American born today is only 78.8 years, lower than the life expectancy of a Chilean who, on average, spends close to 1000% less on health care annually than her American counterpart ($464.20 per year versus $4,570.50).4 And that lopsided example is not atypical.5

Whether the highly-fragmented nature of the U.S. healthcare system6, artificial insulation from otherwise equalizing free-market forces7, or other factors leading to the failure of the U.S. healthcare model, one thing seems clear—change is long overdue.

That’s where Amazon comes in. On January 30, 2018, Amazon, Berkshire Hathaway, and JPMorgan Chase jointly announced they would “form an independent health care company for their employees in the United States.”8 Shares of established health care insurance companies plummeted the same day, signaling the strength of the troika.9 Although the details of the companies’ plan remain under wraps, the declared focus of the new joint venture will be “on technology solutions that will provide U.S. employees and their families with simplified, high-quality and transparent healthcare at a reasonable cost.”10

So, what does this news mean for the status quo in U.S. healthcare?

On the one hand, it could mean very little. Large companies like Google and Microsoft have already tried to start their own health ventures (with little success)11 “Health care is a business that requires a lot of regulatory compliance and negotiation with established players. A new entrant could bring innovative approaches to old problems, but it may also become stymied by the industry’s complexity.”12 Consider that the three companies are each massive “but also very different, and they may have different priorities about how to structure their health benefits,” which may lead to conflict.13

On the other hand, “[w]hat Amazon, JPMorgan and Berkshire Hathaway have presented could be a new national model. With their combined resources, technology and foresight, they could reduce reliance on insurers and avoid some of the related costs.”14 Indeed, it could “show a new way for employers to provide good, affordable coverage, and increase wages with the savings.”15

After all, Amazon and its partners have the potential to reshape the industry in any number of ways.16 The trio could pave the way for the proliferation and normalization of tele-medicine, for one thing.17 This would decrease the astronomical amount of time patients spend idling in hospital and doctor’s office waiting rooms. More importantly, “the three firms might … use Amazon’s data-processing skills to build tools to monitor and care for patients outside hospitals and surgeries.”18 Although Amazon and company would initially design tools to benefit only their own employees, whatever they invent is likely to make its way to the general public.19 And it is the potential for innovation leveraging Amazon’s areas of expertise—the manipulation of big data and cutting out  middle-men—that is most exciting.

Consider how Amazon could amass “a wealth of integrated data that links an individual’s medical record with their overall purchasing patterns, genetic information . . . and activity patterns” and use that information to efficiently “target care based on a patient’s specific preferences or genomic information.”20 And forget the brick-and-mortar pharmacy: Amazon’s “broad distribution network aimed at same-day delivery in many markets . . . [could conceivably] make the immediate delivery of certain prescriptions along with one’s groceries or other products a reality.”21 If Amazon continues to do what it does best—leveraging its strengths to upend an inefficient business model—it could go far, especially with the financial and insurance expertise its partners bring to bear.

As it stands now, the industry has only enough information to sit tight and speculate. But as numerous as the avenues are for Amazon and its partners to upend the status quo in U.S. healthcare, so too are the possibilities for a loud and disappointing misfire.22 Whatever the result, in a system where employee contributions to healthcare premiums have outgrown employee earnings by close to 200% in the last two decades, even a glimmer of something new might be considered progress long overdue.23

  1. Zachary Tracer & Hugh Son, Amazon, Berkshire, JPMorgan Link Up to Form New Health-Care Company, Bloomberg (Jan. 30, 2018), https://www.bloomberg.com/news/articles/2018-01-30/amazon-berkshire-jpmorgan-to-set-up-a-health-company-for-staff. ↩

  2. Mona Chalabi, America’s broken healthcare system – in one simple chart, The Guardian (Jul. 2, 2017), https://www.theguardian.com/us-news/datablog/2017/jul/02/us-healthcare-broken-system-one-chart; see also Robert Zubrin, Fixing What Ails Our Health-Care System, National Review (Mar. 28, 2017), https://www.nationalreview.com/2017/03/american-health-care-reform-reimagining-failed-system/. ↩

  3. See Chalabi, supra note 2. ↩

  4. Id. ↩

  5. See generally id. ↩

  6. See Erin Brodwin, A coalition of the most advanced countries summed up what’s wrong with America’s healthcare system in 2 points, Business Insider (Jun. 23, 2017), http://www.businessinsider.com/why-us-health-care-bad-oecd-2017-6; Patt Morrison, The U.S. medical system is broken. We should be listening to doctors about how to fix it, L.A. Times (Jul. 5, 2017), http://www.latimes.com/opinion/op-ed/la-ol-patt-morrison-robert-pearl-healthcare-20170705-htmlstory.html. ↩

  7. See Zubrin, supra note 2. ↩

  8. Nick Wingfield et al., Amazon, Berkshire Hathaway and JPMorgan Team Up to Try to Disrupt Health Care, N.Y. Times (Jan. 30, 2018), https://www.nytimes.com/2018/01/30/technology/amazon-berkshire-hathaway-jpmorgan-health-care.html. ↩

  9. Wingfield et. al., supra note 8; Derek Thompson, Amazon, Berkshire Hathaway, and JPMorgan Are Going to Fix Health Care—Somehow, Atlantic (Jan. 30, 2018), https://www.theatlantic.com/business/archive/2018/01/amazon-berkshire-jpmorgan-health-care/551858/. ↩

  10. Bill Chappell & Colin Dwyer, Amazon, Berkshire Hathaway and JPMorgan Chase Launch New Health Care Company, National Public Radio (Jan. 30, 2018), https://www.npr.org/sections/thetwo-way/2018/01/30/581804474/amazon-berkshire-hathaway-and-jpmorgan-chase-launch-new-healthcare-company; see also Cara Lombardo et al., Amazon, Berkshire Hathaway, JPMorgan Join Forces to Pare Health-Care Costs, Wall St. J. (Jan. 30, 2018), https://www.wsj.com/articles/amazon-berkshire-hathaway-jpmorgan-to-partner-on-health-care-1517315659. ↩

  11. See Apple and Amazon’s moves in health signal a coming transformation, The Economist (Feb. 3, 2018), https://www.economist.com/news/business/21736193-worlds-biggest-tech-firms-see-opportunity-health-care-which-could-mean-empowered.)), and the fact that none of Amazon, JPMorgan, or Berkshire Hathaway have expertise in health care could pose a major challenge to their potential success. ((See Margot Sanger-Katz & Reed Abelson, Can Amazon and Friends Handle Health Care? There’s Reason for Doubt, N.Y. Times (Jan. 30, 2018), https://www.nytimes.com/2018/01/30/upshot/can-amazon-and-friends-handle-health-care-theres-reason-for-doubt.html. ↩

  12. Id. ↩

  13. Id. ↩

  14. Laura Dyrda, What the Amazon, JPMorgan, Berkshire partnership means for healthcare: 35 executives respond, Becker’s Hosp. Rev. (Feb. 7, 2018), https://www.beckershospitalreview.com/finance/what-the-amazon-jpmorgan-berkshire-partnership-means-for-healthcare-35-executives-respond.html. ↩

  15. Id. ↩

  16. See generally Leonid Bershidsky, How Amazon & Co. Could Fix Health Care, Bloomberg (Jan. 31, 2018), https://www.bloomberg.com/view/articles/2018-01-31/how-amazon-co-could-fix-health-care. ↩

  17. See Aaron Krumins, How Amazon Could Succeed in Overturning the Old Healthcare Model, ExtremeTech (Feb. 21, 2018), https://www.extremetech.com/extreme/264130-amazon-succeed-overturning-old-healthcare-model. ↩

  18. The Economist, supra note 11. ↩

  19. See id.; but cf. Sanger-Katz, supra note 12 (“There is not a clear strategic incentive to sell whatever they learn.”). ↩

  20. Robert S. Huckman, What Could Amazon’s Approach to Health Care Look Like?, Harv. Bus. Rev. (Feb. 6, 2018), https://hbr.org/2018/02/what-could-amazons-approach-to-health-care-look-like. ↩

  21. Id. ↩

  22. See generally Sanger-Katz, supra note 12. ↩

  23. Wingfield et. al., supra note 8; see also Krumins, supra note 18. ↩

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