Three of the nation's most influential CEOs pledged their companies' resources Tuesday to attacking the inexorable rise in U.S. health care costs — a force that one executive called "the hungry tapeworm on the American economy" — while also transforming the system so it better serves patients.
Amazon, Berkshire Hathaway and JPMorgan Chase & Co. are launching a company that won't be focused on profits, the executives said, but rather on technology solutions to create a high-quality and transparent system that delivers health care at a reasonable cost.
The proposal was short on specifics, but nonetheless pushed down the share price Tuesday at several large health care firms including Minnetonka-based UnitedHealth Group.
"These are major companies with proven track records, so one has to take it seriously," said Larry Levitt, a senior vice president with the California-based Kaiser Family Foundation. "But the streets are littered with efforts from the outside to disrupt health care, so one has to look at this effort with some skepticism."
Amazon is the Seattle-based online retail giant that has been the focus of Wall Street chatter for months, as analysts have speculated on whether the company would enter the pharmacy business. Amazon's impressive growth trajectory has made a star of CEO Jeff Bezos, who is currently presiding over the company's high-profile effort to find a second North American headquarters.
JPMorgan Chase is one of the nation's largest financial service firms, led by chief executive Jamie Dimon — a corporate star in his own right for guiding the bank successfully through last decade's financial crisis. To some investors, Warren Buffett and his Omaha-based Berkshire Hathaway personify the best values of American capitalism.
Buffett has maintained that rising health care costs in the United States are a serious financial drag on the economy, and issued a statement Tuesday that announced the new effort with a familiar rhetorical flourish.
"The ballooning costs of health care act as a hungry tapeworm on the American economy," Buffett said. "Our group does not come to this problem with answers. But we also do not accept it as inevitable."
The companies said they would launch a firm that is "free from profit-making incentives and constraints" in order to improve costs and satisfaction for their employees. Amazon, Berkshire Hathaway and JPMorgan Chase each put forward an executive to get the effort started, with the longer-term management team and headquarters location not yet determined.
"The health care system is complex, and we enter into this challenge open-eyed about the degree of difficulty," Bezos said in the statement. "Hard as it might be, reducing health care's burden on the economy while improving outcomes for employees and their families would be worth the effort."
Dimon added: "Our people want transparency, knowledge and control when it comes to managing their health care."
Analysts said the companies collectively employ somewhere in the neighborhood of 1 million people — a group that's likely large enough to negotiate concessions from health care vendors that save money in the short term.
The test, however, will be whether the new company goes beyond using its purchasing power, and actually tries to transform the health care system, said Carolyn Pare, chief executive of the Minnesota Health Action Group, an employer coalition based in Bloomington that's nearly 30 years old.
Employers have long talked about bringing true reform to health care, Pare said, through direct contracts with health care providers designed to eliminate waste and inefficiency that comes with the current "fee-for-service" payment system.
Karen Wolk Feinstein, chief executive of an employer group in Pennsylvania called the Pittsburgh Regional Health Initiative, said the current system creates incentives to provide more expensive care, rather than rewarding care that provides good quality at a good price.
"I think what Amazon and Berkshire and JPMorgan are saying is: 'Hey, we don't have to live with that,' " Feinstein said. She added that technology could be the real "game-changer," potentially helping patients avoid unnecessary surgeries and medications.
But the employer coalitions that have tried to transform health care in the past have fallen short.
"If it was an easy fix, I think we'd have already found it and would be doing it," said David Heupel, an analyst in Minneapolis with Thrivent.
Amazon's track record of success means that investors pay attention when the company talks about entering a new market, Heupel said. UnitedHealth Group shares on Tuesday closed down more than 4 percent, losing $10.76 a share to close at $236.65. The company declined to comment.
But UnitedHealth Group's track record isn't easily dismissed either, Heupel said, noting the company's capability for analyzing data to deliver a higher-value health care system. The company's UnitedHealthcare division is the nation's largest health insurer, and its growing Optum division does everything from managing pharmacy benefits to providing patient care in clinics, surgery centers and urgent care centers.
"That will be a difficult task to duplicate," Heupel said of the new company. "I'm not going to dismiss it, but there's a lot of inherent advantages to United having such a vertically integrated model."