Three of the nation's most formidable companies -- Amazon.com, Berkshire Hathaway Inc. and JPMorgan Chase & Co. -- sent shock waves through the healthcare industry Tuesday by announcing a joint plan to reduce healthcare costs for their U.S. employees.
Although the companies said their focus mainly would be on providing improved healthcare for their own U.S. workers, which total nearly 1 million, the move immediately triggered speculation that any solutions they develop could spread throughout the industry.
That sent healthcare, drug and health-insurance stocks tumbling even though the three companies provided few initial details about their venture, with investors guessing that the trio's initiative eventually could crimp sales growth and profits for others in the healthcare field.
Consumers might see a benefit if the companies could develop a blueprint for curbing the surge in healthcare and drug costs while maintaining or enhancing patient care, a scenario that government and the industry so far have struggled to achieve.
The speculation of a disruption to the industry was fueled by the stature of the three companies' billionaire chief executives: Amazon's Jeff Bezos, who already has radically changed the retail industry; Warren Buffett, the famed investor who also oversees dozens of companies under Berkshire's umbrella; and Jamie Dimon, whose JPMorgan Chase is the nation's largest bank with $2.5 trillion in assets.
Bezos and Buffett also are two of the nation's richest people, with net worths of $119 billion and $92 billion, respectively, while Dimon's net worth is just over $1 billion, according to Forbes.
The three said they would start "an independent company that is free from profit-making incentives and constraints" and that its early focus "will be on technology solutions" that would provide "simplified, high-quality and transparent healthcare at a reasonable cost."
"The ballooning costs of healthcare act as a hungry tapeworm on the American economy," Buffett said in a statement. "Our group does not come to this problem with answers. But we also do not accept it as inevitable."
Dimon, in turn, said in the same statement that "our goal is to create solutions that benefit our U.S. employees, their families and, potentially, all Americans."
The management team, location of the headquarters and other operational details will be announced later, the companies said.
The new venture probably won't affect the polarized healthcare debate in Washington, but could alter the dynamics of the issue down the line if the companies come up with some innovative ideas, said Neil Trautwein, a vice president at the National Retail Federation trade group who lobbies Congress on healthcare issues.
"It's not an immediate debate-disrupter. It takes quite a bit to move what has been a highly, highly regulated marketplace," said Trautwein, a former aide to Senate Majority Leader Mitch McConnell (R-Ky.).
"But if these three companies, each of which have been extremely innovative, succeed in driving major change, then I think you'll see private-sector employers get behind it."
A new, innovative approach to healthcare "is potentially a game-changer," Trautwein said.
"Imagine a world where, much the same as we might shop on Amazon's site, we have information on physicians, how much he or she charges, what is the consumer reaction, what kind of outcomes they have," he said. "If you can make healthcare that easy, then you can squeeze a lot of unnecessary cost out of the system."
Government efforts to drive down costs and influence consumer behavior have not been successful, Trautwein said.
"Changing consumer behavior is a difficult thing to do. It hasn't responded well to government rules and regulations," he said. "You can't mandate people to obtain the right medical care but perhaps you can [incentivize] them to do that. I think this may be, without seeing the chapter and verse of the joint venture, what the companies are driving toward."
Gary Cohn, President Trump's top economic advisor, said that the effort by Amazon, Berkshire Hathaway and JPMorgan to jointly address healthcare was the same as the administration was doing by proposing rules to make it easier for self-employed Americans, small businesses and others to band together to get insurance through what are called association health plans.
"We created [association] healthcare plans where smaller businesses could pool their employees together to get more purchasing power, so they could save money on healthcare," Cohn told CNBC. "We agree on that philosophy — we think that individual workers should have to pay less for healthcare and we want workers to pool together."
But those plans are specifically designed for small businesses and would probably be able to skirt a requirement in the Affordable Care Act that requires health plans sold directly to consumers to offer a basic set of benefits, such as prescription drugs and maternity care. Most large employers already are exempt from the health law's benefits mandate.
The new venture "will certainly help lower annual increased healthcare costs" because of the huge number of employees involved and the ability to cut out middlemen, such as pharmacy benefit managers, Julius Hobson, a healthcare lobbyist with the Polsinelli law firm in Washington, said in an email.
"Hospitals could contract directly with the new company. Initially, the company could buy drugs at a greater volume and demand lower prices," Hobson said.
Amazon, which became a giant in online shopping while disrupting the traditional retail industry, already had signaled an interest in entering the pharmaceuticals supply business.
Amazon's overtures in that field were cited as one reason CVS Health Corp., the nation's largest pharmacy chain, moved to bulk up by agreeing in December to buy healthcare insurer Aetna Inc. for $69 billion.
In response to the Amazon-Berkshire-JPMorgan venture, Aetna Chief Executive Mark Bertolini said he welcomed the effort.
"There is an unmet consumer need in healthcare," Bertolini said in an email. "Individuals and families want a simple, affordable and high-quality experience that helps them stay well. Our combination with CVS Health will help address those needs at the local level, and I am encouraged to see other companies working toward the same goal."
Kaiser Permanente Chief Executive Bernard Tyson also said in a statement that "we always welcome fresh thinking and new approaches to make care more affordable and easier to access."
With nearly half of Americans getting health benefits through an employer, many public officials and health policy experts have looked to big businesses to use their clout to bring down healthcare costs and make the U.S. healthcare system more efficient.
A handful — such as Boeing Co., Xerox Corp. and Wal-Mart Stores Inc. — have pushed hospitals and physicians who treat their employees to improve the way they deliver medical care.
But most businesses have been reluctant to manage medical providers as they might other key suppliers or don't have enough employees in any one market to have an effect. Few companies, for example, have as much local clout as Boeing, which employs about 80,000 people in Washington state.
Instead, businesses have found it easier to shift rising healthcare costs onto their employees, saddling them with higher deductibles and premiums.
The Affordable Care Act largely preserved the employer-provided healthcare system, focusing new coverage requirements on insurers that cover Americans who don't get health benefits at work.
And although the law included many provisions designed to make healthcare more efficient, these initiatives have been implemented through Medicare, the half-century-old government health plan for the elderly and disabled.
Medicare has traditionally been able to drive greater changes in the healthcare system because so many elderly Americans rely on the program.
Amazon's inclusion in the new venture was notable because the e-commerce titan — which revolutionized retailing with its website, low prices, quick deliveries and massive distribution system — "arguably has the best technical abilities of any company we cover," analysts at Barclays said in a note to clients.
"We are never dismissive of anything disruptive that Amazon is involved in," they said.
Jeffrey Loo, an analyst with CFRA Research, said he also "would never bet against Warren Buffett or Amazon." But he said the sharp drop in share prices of health insurers Tuesday — Cigna Corp.'s stock fell 7% and Anthem Inc. dropped 5%, for example — "was an overreaction."
"We're talking 18 months to two years down the road before something gets up and running, and currently their plans are to develop this venture strictly for their own employees," Loo said. "Longer term, if the model works, they'll roll it out to a broader audience."
Bezos also cautioned that the new venture would not achieve its goals overnight.
"Hard as it might be, reducing healthcare's burden on the economy while improving outcomes for employees and their families would be worth the effort," he said in a statement. "Success is going to require talented experts, a beginner's mind, and a long-term orientation."
3:45 p.m.: This article was updated with additional analysts' quotes about the prospects for the new company and the impact on insurers' stock prices Tuesday.
1:40 p.m.: This article was updated throughout with staff reporting, including additional details about the potential effect of the new company and analysts' observations.
8:30 a.m.: This article was updated throughout with additional information.