Amazon Deal Brings Uncertain Opportunities, Challenges for Health Care

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By Victoria Pelham

Amazon’s deal to form a new health-care company with Berkshire Hathaway and JPMorgan could create hefty ripple effects across the health insurance and provider landscape if it gets its formula right.

The partnership plans to use technology solutions to rein in health-care costs and improve quality, according to a joint statement. But there are few other details on the employer-sponsored venture, which is still in its infancy.

It’s unclear whether the partnership will push a new health-care funding mechanism or simply seek to shake up the delivery system, health-care industry sources told Bloomberg Law.

Still, this kind of deal opens the door for major opportunities to innovate and also poses questions for the health-care industry, including how such a company would fit into the larger regulatory framework and whether the major players could avoid past pitfalls of similar mergers.

“Because most [health care in the U.S.] is employer-sponsored health insurance, it really potentially upsets the apple cart of trying to think outside the box and [if] is there a better way to either pay for health care or deliver health care,” John Fanburg, a health law attorney with Brach Eichler in New Jersey, said.

Fanburg, who represents health-care systems and doctors, is optimistic about what Amazon’s push will mean for his clients.

Uncertain Model

Health-care industry watchers speculate the nonprofit could take the form of anything from a pharmacy benefit manager to a block-chain accountable care organization, a generic drug company, or an insurer. And it could be heavily driven by Amazon’s distribution capabilities, creating inpatient on-demand care, John Gorman, founder and executive chairman of Gorman Health Group in Washington, told Bloomberg Law.

William Schiffbauer, an attorney with Schiffbauer Law Office in Washington, expects the Amazon-Berkshire Hathaway-JPMorgan deal to become something of a think tank for employee benefits, similar to Brookings. The group could perform research on employer plan value.

“The most important factor—and one that was given little focus in the ACA—is the hospital and doctor costs that make up 85 percent of every premium dollar for major medical health insurance costs,” he said in an email statement to Bloomberg Law.

Gorman and Schiffbauer are both Bloomberg Law advisory board members.

Amazon has built-in infrastructure that lends itself more to health-care product or service delivery and to ensuring patients receive the right care at the right time, Gorman said. An entirely new health plan would make less sense.

Insurance Companies

But if the venture is successful in spurring ideas to better contain costs, that could be a boon for all existing health insurers, Gorman said.

“We’ve got to remember that most health plans are already heavily consolidated around leveraging scale to reduce costs, and even a venture this big will struggle to replicate that at scale,” he said. “They will have to work with large national insurers to accomplish this goal they’ve set out here.”

Fanburg said health plans “should be nervous.”

“Here is a potential real competitor,” he said.

Even stronger would be an alliance that brings in health-care providers, either hospitals or doctors, Fanburg added, calling it “critical to its success.” The venture could try to expand and bring new companies into a structure that connects employers directly to care providers without the middle man. That would also be in line with deals such as the CVS and Aetna merger.

Fanburg also expects the new model to prioritize outpatient care, as opposed to more costly institutional settings.

Regulation

Gorman noted that ERISA, as well as other federal and state insurance rules, would govern regulation if the trio’s newly formed independent health-care company becomes an insurer.

ERISA (the Employee Retirement Income Security Act of 1974) covers standards for private industry health plans. That’s very much a federal “hands-off” approach and a “loose construct” that would leave the partnership subject to more burdensome state rules, Gorman said.

“As the current structure of health care is provided, it’s all regulated in the state level, and they would have to deal with that,” Fanburg added.

Amazon would have to be licensed in the states where health-care was being provided or potentially pursue demonstration projects to drive innovation. And the rules can dramatically differ state-by-state.

The partnership would also need to comply with Food and Drug Administration rules if it delves into generic drugs or medical devices, the Department of Labor if it’s an association health plan, or the Centers for Medicare & Medicaid Services if it veers into provider and insurer obligations. It could also try to pursue demonstration project waivers.

“The payment and delivery of health care is a very complicated process and... a real challenge,” Fanburg said.

“Maybe they’re big enough and strong enough they can write their own rules,” he said. “Time will tell.”

To contact the reporter on this story: Victoria Pelham in Washington at vpelham@bloomberglaw.com

To contact the editor responsible for this story: Brian Broderick at bbroderick@bloomberglaw.com

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