Amazon and its effect on the health care industry
February 15, 2018
An editorial by Eric Wilson
Amazon has made a huge impact on the retail world over the past few years. The ability to purchase just about anything online has made life easier for consumers. We have seen sporting good stores such as Sports Authority and MC Sports and Golfsmith close. Is that because of Amazon? Maybe!
Amazon has been discussing getting into the pharmaceutical industry, this is a logical business for a company like Amazon to be in since mail order prescriptions tend to offer savings over retail stores. Amazon has the infrastructure already in place to be in this online space.
On December 3, 2017, Aetna and CVS pharmacy announced a merger. The intent is to provide better health outcomes and a lower price. While they two had been in talks for some time, it is widely believed that the timetable was accelerated by the talk of Amazon getting into the mail order pharmacy business. Amazon again making an impact on an industry.
On January 30, 2018, Amazon, Berkshire Hathaway and JPMorgan Chase announced a partnership to cut health care costs and attempt to improve service for their combined 1.1 million US employees. The newly formed company's goal will be to target technology to simplify the health care system. Most details have not been released. Large companies such as these are self-insured, but use an insurance company to administer the benefits. JPMorgan currently uses Cigna and United Health Care to administer their benefits, though they are self-insured, as an example.
Here are some key points, as everyone wonders if this big three will have a huge impact on the health care system in this country.
First of all, their focus is on technology at this point. Technology is important, especially being able to link people's records together from hospital to hospital, or for that matter, doctor to doctor. This could drive down some cost by reducing manpower and saving time.
Second, at this point it is only for employees of these three companies, so it may help one million of their employees, but that does not help other companies, unless they can duplicate the model used. Also, at this point it will have no effect on the individual market.
Third, doctors and hospitals still need to get paid. We have seen insurance companies try to go to smaller networks to control costs. They could create their own medical group, and try to drive consumers to the group, but the doctors still need to get paid a fair wage. The hospital needs to charge at least the fair market rate for their services as well, or you will see more hospital closings or mergers.
With the smaller networks we are currently seeing, they are paying the doctors and hospitals less, with the hope of driving more volume. With that, we are starting to see a reverse effect with doctors. More and more doctors are doing away with taking insurance and going direct to the consumer. So if that trend continues, the Amazon, JPMorgan, Berkshire move will have no effect on that facet of the business.
Fourth, currently, the health insurance industry is highly regulated. Sadly regulation adds costs.
Fifth, it is complicated. It will take, in all likelihood, at least three years to implement. The way the health care world changes (it seems like daily), in three years we could be looking at a totally different cost structure.
Where I do think an impact can be made is if Amazon does get into the pharmaceutical industry. Mail order saves clients time, and if they can eliminate the "middleman" by not only shipping the medications, but also becoming the administrator, that will eliminate some additional costs.
Also, the Trump administration has said it would like to allow medications from other countries to compete with our U.S. pharmacies. Amazon is already doing business worldwide and could possibly dominate that sector, especially if they can use fast delivery with services such as Amazon Prime. While Amazon Prime might not be available for a medication from, say, London, it still could provide quicker service than current mail order companies.
In summary, while the recent partnership from these big three carriers may seem like it will have a big impact on the market, I believe it will have little impact on the current state of health care affairs.
Eric Wilson is principal of Wilson Associates, a leading insurance broker.
Amazon has made a huge impact on the retail world over the past few years. The ability to purchase just about anything online has made life easier for consumers. We have seen sporting good stores such as Sports Authority and MC Sports and Golfsmith close. Is that because of Amazon? Maybe!
Amazon has been discussing getting into the pharmaceutical industry, this is a logical business for a company like Amazon to be in since mail order prescriptions tend to offer savings over retail stores. Amazon has the infrastructure already in place to be in this online space.
On December 3, 2017, Aetna and CVS pharmacy announced a merger. The intent is to provide better health outcomes and a lower price. While they two had been in talks for some time, it is widely believed that the timetable was accelerated by the talk of Amazon getting into the mail order pharmacy business. Amazon again making an impact on an industry.
On January 30, 2018, Amazon, Berkshire Hathaway and JPMorgan Chase announced a partnership to cut health care costs and attempt to improve service for their combined 1.1 million US employees. The newly formed company's goal will be to target technology to simplify the health care system. Most details have not been released. Large companies such as these are self-insured, but use an insurance company to administer the benefits. JPMorgan currently uses Cigna and United Health Care to administer their benefits, though they are self-insured, as an example.
Here are some key points, as everyone wonders if this big three will have a huge impact on the health care system in this country.
First of all, their focus is on technology at this point. Technology is important, especially being able to link people's records together from hospital to hospital, or for that matter, doctor to doctor. This could drive down some cost by reducing manpower and saving time.
Second, at this point it is only for employees of these three companies, so it may help one million of their employees, but that does not help other companies, unless they can duplicate the model used. Also, at this point it will have no effect on the individual market.
Third, doctors and hospitals still need to get paid. We have seen insurance companies try to go to smaller networks to control costs. They could create their own medical group, and try to drive consumers to the group, but the doctors still need to get paid a fair wage. The hospital needs to charge at least the fair market rate for their services as well, or you will see more hospital closings or mergers.
With the smaller networks we are currently seeing, they are paying the doctors and hospitals less, with the hope of driving more volume. With that, we are starting to see a reverse effect with doctors. More and more doctors are doing away with taking insurance and going direct to the consumer. So if that trend continues, the Amazon, JPMorgan, Berkshire move will have no effect on that facet of the business.
Fourth, currently, the health insurance industry is highly regulated. Sadly regulation adds costs.
Fifth, it is complicated. It will take, in all likelihood, at least three years to implement. The way the health care world changes (it seems like daily), in three years we could be looking at a totally different cost structure.
Where I do think an impact can be made is if Amazon does get into the pharmaceutical industry. Mail order saves clients time, and if they can eliminate the "middleman" by not only shipping the medications, but also becoming the administrator, that will eliminate some additional costs.
Eric Wilson
In summary, while the recent partnership from these big three carriers may seem like it will have a big impact on the market, I believe it will have little impact on the current state of health care affairs.
Eric Wilson is principal of Wilson Associates, a leading insurance broker.