The selloff in managed care stocks following the news of Amazon.com Inc. (AMZN) , Berkshire Hathaway Inc. (BRK.A) and JPMorgan Chase & Co.'s (JPM) healthcare initiative could make it a good time to buy them, several analysts said on Tuesday, Jan. 30.
"The partnership may consider an external health plan offering at some point, but we view a sharp selloff in MCOs [managed care organizations] today as a buying opportunity," Evercore ISI analysts wrote in a note.
Shares of Aetna Inc. (AET) finished Tuesday's trading session down 3% at $187.89. Anthem Inc.'s (ANTM) shares closed at $243.44, marking a 5.3% drop. Shares of Cigna Corp. (CI) declined 7.2% to $207.89, Humana Inc. (HUM) closed down 3.1% at $282.29 and UnitedHealth Group Inc. (UNH) ended the session at $236.65, down 4.4%.
Amazon, Berkshire and JPMorgan announced Tuesday that they have banded together to improve healthcare for their U.S. employees. The trio plan to form an independent company "that is free from profit-making incentives and constraints" and will focus initially on technology that will give employees and their families "simplified, high-quality and transparent healthcare at a reasonable cost," the statement said.
In a note, Evercore analysts said the initiative is "many years from presenting a real competitive threat, if ever, and there is no obvious competitive advantage, with MCOs and many other companies also developing technology aimed at price transparency and cost control."
Analysts also pointed out that the industry is heading toward vertical integration, citing the expansion of UnitedHealth's Optum business and CVS Health Corp.'s (CVS) December deal to buy insurer Aetna for $69 billion as examples. The move towards vertical integration makes the "barriers for new entrants higher," they wrote.
JPMorgan uses UnitedHealth and Cigna to administer health benefits on a self-insured basis, and Amazon uses nonprofit Premera Blue Cross, analysts noted.
Premera Blue Cross spokesman Steve Kipp said via email: "As the health plan of choice for Amazon employees, our focus is on helping them address their healthcare issues both big and small. From our years working with Amazon, we know the company shares our vision of making healthcare simpler and more affordable."
Kipp added that Premera looks forward to "working with them as we continue to seek innovative solutions for making healthcare work better."
Representatives for UnitedHealth and Cigna did not immediately respond to a request for comment.
Amazon's healthcare ambitions have been the subject of frequent speculation on Wall Street over the past several months, with many speculating that Amazon would get into the pharmacy business.
For drug distributors, Tuesday's news alleviates short-term risk, wrote RBC Capital Markets LLC analysts in a note.
"At first glance this initiative seems to have little market clout with respect to impacting healthcare costs and would not seem to have the capability to displace established players," they wrote. "If this was the Amazon announcement drug supply chain investors have been fearing since early 2017, consider us relieved."
AmerisourceBergen's shares closed at $102.46 on Tuesday, down 2.5%. Shares of Cardinal Health finished 1.8% lower at $73.87, and McKesson's shares ended the day at $171.75, down 2.6%.
The team-up of Amazon, Berkshire and JPMorgan comes after 20 large companies in 2016 formed the Health Transformation Alliance, or HTA, with the aim of improving the way healthcare benefits are purchased for their employees. HTA's founding members included American Express Co. (AXP) , Caterpillar Inc. (CAT) , Verizon Communications Inc. (VZ) and Macy's Inc. (M) . The alliance had 40 members as of October, according to its website.
In a note, Jefferies LLC analyst Brian Tanquilut wrote that he sees the Amazon-Berkshire-JPMorgan partnership as "something that could be a more active version" of HTA, with the opportunity for the trio to contract and negotiate with healthcare providers directly. JPMorgan, he pointed out, already negotiates with hospitals directly in certain markets.
In addition, Tanquilut said the three companies could "incorporate more proactive services and technology-enabled capabilities (either internally developed or acquired) that could bring down costs and improve overall healthcare." --Tony Owusu contributed to this article
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