Amazon.com Inc. (AMZN) , Berkshire Hathaway Inc. (BRK.A) , (BRK.B) and JPMorgan Chase & Co. (JPM) are banding together to beat back healthcare costs that Warren Buffett likened to "a hungry tapeworm" leeching off the U.S. economy.
The partners are focusing on healthcare tech, and say they will build a non-profit group that will reduce the healthcare costs of their own companies. Given the history and skills of the three partners, the healthcare group could make acquisitions to create a larger group with ambitions across the larger economy.
"If they want to make inroads into the healthcare space, starting from scratch with no platform is probably a challenging way to do it," Benchmark Co. LLC analyst Dan Kurnos said Tuesday.
"Warren Buffett's forte is acquiring and running companies, particularly for the cash flow," the analyst added. "He's also good at insurance so maybe that's his angle."
Amazon Web Services, the cloud computing juggernaut that has reshaped the IT industry, started as an internal project to handle Amazon's computing needs. AWS will likely play a role in the development of the venture, and could provide a model for how the business could expand beyond the payrolls of Amazon, Berkshire Hathaway and JPMorgan.
"AWS will, I'm sure, be the backbone for most of the data," Kurnos said. The company could use Amazon's technology to digitize medical records. "That's been a bane to the industry."
The group will have dealmaking acumen. JPMorgan's representative is Marvelle Sullivan Berchtold, a managing director who is a former global head of M&A at pharma giant Novartis AG. Sullivan Berchtold's deals at Novartis include the acquisition of purchase of eye-care titan Alcon Inc. in 2010.
Berkshire Hathaway's representative is Todd Combs, an investment officer who has become one of the firm's top stock pickers. Combs sits on the boards of Precision Castparts Corp., which Berkshire Hathaway purchased for $37.2 billion in 2016; Charter Brokerage LLC, acquired in 2014; and Duracell Inc., acquired in 2014.
Representing Amazon is Beth Galetti, a senior vice president for human resources.
The project could take years to build, Leerink Parnters analyst David Larsen suggested in a report. "[W]e do believe that [Amazon]'s efforts in the healthcare space are heating up, we believe a small exploratory team has been created to investigate the supply chain for prescription drugs and this news report is one more indication that [Amazon] is getting more aggressive in the healthcare space," Larsen wrote."
The healthcare market provides a huge opportunity for Amazon and its partners to expand their own employment rolls, as Amazon Web Services did. The AWS business model may not fit with the healthcare venture's mission, however.
"It certainly has the opportunity to be like an AWS but they've said [it will be] 'an independent company that is free from profit-making incentives,' " Kurnos said.
AWS has grown into an economic powerhouse.
"You don't put out a press release saying healthcare is effectively broken and costs are killing the economy and we are creating this vehicle to combat it—and oh by the way its going to make billions of dollars," he added. "That seems like an incongruous statement."
—Armie Margaret Lee and Michael D. Brown contributed to this article
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