A day that prescription-drug middlemen had long feared finally arrived.
The industry awoke to the news this past Tuesday that Amazon.com was joining with Berkshire Hathaway and JPMorgan Chase to form a new health care business, in an attempt by three of the world’s best-known companies to contain the spiraling cost of keeping their U.S. workers healthy.
Other groups of big employers have tried to improve worker health care in the past, but none have dethroned the pharmacy-benefit managers whom drug companies and some lawmakers claim aren’t transparent about the pricing deals they strike on behalf of health plans, and about how much money they keep for themselves.
The new partnership has the potential to be one of the most ambitious employer efforts to date to control health expenses.
While the companies provided few details, their combined clout and expertise in technology and finance could be used to bring drastic changes to the way prescription drugs are paid for, according to analysts.
“They could completely cut out the middlemen here,” said Pratap Khedkar, a managing principal at the health consulting firm ZS Associates.
By doing so, Amazon, Berkshire and JPMorgan could gain more control over their spending and save money pharmacy-benefit managers currently consume, he said.
Health costs have been an increasing burden for workers and businesses here in the United States, where about half the population gets health insurance through work.
ARTICLE CONTINUES BELOW ADVERTISEMENT
On average, 8.3 percent of total compensation costs for civilian workers went to health care in 2017, up from 7.3 percent in 2004, according to U.S. government data.
Change is likely to be slow in arriving. The companies outlined few concrete steps in their announcement, and making big changes to the entrenched, inefficient U.S. health system likely will prove more complicated than Jeff Bezos and Warren Buffett imagine, some health experts say.
“It is a bit arrogant to think three big firms are going to come in and kind of reinvent health care,” said Zack Cooper, an economist at Yale School of Public Health.
“It is like health care companies saying they don’t like their telephones or computers so they are going to reinvent the IT industry.”
Late Tuesday, the Wall Street Journal cited an anonymous source saying that the current focus of the venture is helping existing vendors work better and not replacing them.
But it also noted that a December document had criticized the role of the middlemen and discussed taking over their functions.
The pact isn’t the first time that corporations have pledged to upend the system. The Health Transformation Alliance, a group of 46 large employers launched two years ago to fix the health care system, negotiated better drug contracts with CVS Health Corp. and UnitedHealth Group Inc.’s OptumRx — two of the largest pharmacy-benefits managers.
It says the new contracts should save its members who use them 15 percent a year in drug costs.
But the new venture unveiled by the trio of corporate titans could have the opportunity to do something far more drastic, such as bargain directly with drugmakers on top-selling drugs, or create an online bidding system to transparently negotiate drug prices, experts said.
That could erode an important source of profits for pharmacy-benefits managers.
ARTICLE CONTINUES BELOW ADVERTISEMENT
Thank you for signing up for our e-newsletter!
You should start receiving the e-newsletters within a couple days.
The prospect of Amazon entering the health care industry has had retailers, drugmakers and insurance companies looking over their shoulders since last fall, when reports emerged that internet retailer had gathered up pharmacy wholesaler licenses in more than a dozen states.
For their part, pharmacy-benefits managers have said they save employers billions and that their clients have the ability to do audits to confirm they are getting all the promised drug discounts. The companies said they welcome the efforts of Amazon, Berkshire and JPMorgan.
The announcement “is clear recognition that the health care system needs to continue to create and deliver meaningful value,” Express Scripts, which currently manages drug benefits for Amazon.com, said in a statement.
CVS, which manages pharmacy benefits for JPMorgan, said in an email that the new organization “seems to share our goal of improving consumer health while reducing costs.”
UnitedHealth Group declined to comment.
In the meantime, the middlemen are trying to remake themselves.
With the Amazon threat looming, CVS agreed last year to take over insurance giant Aetna, while Anthem said it will set up its own pharmacy-benefits manager after the insurer’s relationship with Express Scripts fell apart in a dispute over pricing.